Grupo Financiero Banorte (GFNORTEO) reported its Q2 2025 earnings, revealing a 4% sequential decline in net income to 14.6 billion MXN. The company’s return on equity improved slightly, and the stock saw a modest increase of 1.02% in its latest trading session.

Key Takeaways

• Net income for Q2 2025 was 14.6 billion MXN, a 4% decline from the previous quarter.
• First half 2025 net income rose by 6% year-over-year to 29.9 billion MXN.
• Return on equity increased by 17 basis points to 23.6%.
• The stock price increased by 1.02% following the earnings announcement.

Company Performance

Grupo Financiero Banorte experienced a slight downturn in quarterly net income but showed a positive year-over-year growth for the first half of 2025. The company’s return on equity saw a modest increase, indicating improved efficiency in generating profits from shareholders’ equity. Despite the net income drop, the company maintained strong market positions, particularly in consumer lending.

Financial Highlights

• Q2 net income: 14.6 billion MXN (4% sequential decline)
• First half 2025 net income: 29.9 billion MXN (6% year-over-year increase)
• Return on equity: 23.6% (17 basis points increase)
• Net interest margin: 6.4%

Outlook & Guidance

Grupo Financiero Banorte is maintaining its full-year guidance, expecting continued loan growth and a more favorable second half of 2025. The company is also focused on cost optimization and anticipates potential positive impacts from the 2026 World Cup on the economy.

Executive Commentary

• CEO José Marcos Ramírez Miguel highlighted, “We have seen better-than-expected results in our expense line and in our main risk indicators.”
• COO Rafael Victorio Arana de la Garza noted, “We never play the game that high interest rates that we charge on the loan will eventually cover the losses.”
• Ramírez Miguel also commented on currency expectations, stating, “Our economic teams expect MXN 19.50 per dollar in the year 2025 and MXN 19.20 in the year 2026.”

Risks and Challenges

• Currency fluctuations could impact financial performance, particularly net interest income.
• Macroeconomic pressures, including a modest GDP growth forecast of 0.5% for 2025, may affect overall market conditions.
• Regulatory scrutiny, especially concerning anti-money laundering capabilities, poses ongoing challenges.

While Grupo Financiero Banorte faces some headwinds, its robust digital capabilities and strategic focus on consumer lending position it well for future growth. The company’s proactive steps in risk management and cost optimization are likely to support its resilience in a challenging economic environment.

Full transcript - Grupo Financiero Banorte (GFNORTEO) Q2 2025:

Tomás Lozano, Head of Investor Relations, Corporate Development, Financial Planning, and ESG, Grupo Financiero Banorte: Good morning, everyone. This is Tomás Lozano, Head of Investor Relations, Corporate Development, Financial Planning, and ESG. Welcome to Grupo Financiero Banorte’s second quarter earnings call for 2025. Our CEO, José Marcos Ramírez Miguel, will begin today’s call by presenting the main results of the quarter and the first half of the year, and will provide more details on the steps that Banorte is taking to strengthen even further our anti-money laundering capabilities. Lastly, he will also comment on our guidance for the year. Rafael Victorio Arana de la Garza, our COO, will go over the financial highlights of the group, providing details on the margin evolution and sensitivity, asset quality, expenses, and our capital allocation for the year. Please note that today’s presentation may include forward-looking statements that are subject to risk and uncertainties, which may cause actual results to differ materially.

On page two of our conference call deck, you will find our full disclaimer regarding forward-looking statements. Thank you. Marcos, please go ahead.

José Marcos Ramírez Miguel, CEO, Grupo Financiero Banorte: Thank you, Tomás. Good morning, everyone. Thank you for joining our call today. The second quarter of the year displays sound core business performance despite a turbulent macroeconomic environment. Internal demand remained resilient in the quarter. However, we anticipate a challenging second half of the year as the global economy still depends on certain trade, fiscal, monetary, and geopolitical factors. For the Mexican economy, our economic analysis team forecasts GDP growth forecasts at 0.5% for the year 2025, driven by resilient private consumption amidst weaker investment and export dynamics. On the fiscal side, the Mexican government continues with a prudent spending strategy and solid tax revenues, which support the country’s fiscal stability and preservation of the investment-grade credit profile. Moreover, we anticipate the Mexican government to continue working closely with the U.S. on trade, migration, and security efforts.

Regarding monetary policy, during the first half of the year, Banco de México reduced the reference rate by 200 basis points to 8%, and we anticipate reaching 7% by year-end. The Mexican peso has shown resilience, supported by a weaker U.S. dollar and an improved risk perception. Therefore, our economic teams expect MXN 19.50 per dollar in the year 2025 and MXN 19.20 in the year 2026. Finally, before diving into the financial results, I would like to address one of the market’s main concerns during the past few weeks. As you know, the U.S. Department of the Treasury recently designated three Mexican-based financial institutions as being of primary money laundering concern.

Mexican authorities have confirmed that there are no more financial institutions under investigation, and this was later reinforced by the Mexican Banking Association, which also stated its commitment to strengthen the anti-money laundering framework in the Mexican banking system. In this regard, I would like to take this opportunity to emphasize that Banorte has always operated with very strict anti-money laundering policies and controls, and we are taking important steps to strengthen it even further. We operate under a robust compliance program with dedicated experienced personnel, strong governance, state-of-the-art technological infrastructure, and detailed policies and procedures. Nonetheless, before the U.S. Department of the Treasury’s recent action and in response to the U.S. government designation of certain drug cartels as foreign terrorist organizations in February, Banorte Board of Directors requested that we take proactive steps beyond what the Fund was already doing to mitigate arising risks.

With the advice of an expert third party, earlier this year, Banorte began a revision of its anti-money laundering and sanctions compliance programs, including, among other things, one, reassessing and updating its compliance policies and procedures; two, conducting an in-depth review of customer activity to ensure our controls are effective and to make any appropriate enhancement; and three, preparing significant training exercises for critical staff. I assure you that Banorte takes these matters very seriously, closely monitoring all relevant developments. As such, we are prepared to take decisive action to ensure that the Fund continues to operate consistently with all applicable laws. Now. Shifting gears to the business performance on the slide number three, net income in the second quarter declined 4% sequentially to MXN 14.6 billion, driven mainly by three factors. One, the normalization in the insurance business after the seasonal premium peak of the first quarter.

Two, our expense allocation strategy to balance distribution the best of our ability during the year and to take advantage of the current strength of the FX to secure better conditions. It is worth noting that the expense guidance for 2025 remains unchanged, and I want to reinforce that this line should be assessed annually rather than quarterly. The third factor was the negative valuation effect of the FX in the margin, which was partially offset by lower funding costs. It is important to remember that 15% of the total loan book is dollar-denominated, and therefore the size of interest collected from this portfolio depends on the FX.

On the other hand, net income for the first half of 2025 reached MXN 29.9 billion, increasing 6% compared to the same period of last year, mainly driven by a strong performance in core banking revenues, which we will discuss in detail later on. ROE increased 17 basis points in the quarter to 23.6%, reflecting sound operating dynamics across our businesses, as well as the effect of the dividend payment in May. Analyzing the quarterly results by subsidiary on the slide number four, the Bank’s net income expanded 7% sequentially to MXN 11.8 billion, supported by dynamic consumer activity in core banking products, a shielded balance sheet in the easing cycle, and larger market-related income, although slightly offset by higher operating expenses. These results yielded an ROE for the Bank of 30.2% for the quarter, 225 basis points higher sequentially.

With accumulated figures, ROE for the Bank stood at 29.1%, 34 basis points higher than the first half of 2024, supported by the balance sheet neutral sensitivity to monetary policy movements in the peso book. The insurance company, as I mentioned before, had the expected quarterly reduction as premium origination normalized after the seasonal renewals of the first quarter. However, on an accumulated basis, we continue to see strong business generations, mostly driven by the bank insurance model. The annuities business quarterly decline accounts for greater claims in the portfolio, in line with business expansion, despite a greater competitive market. In the brokerage sector, the quarterly expansion was driven by increasing fees from higher trading operations. Lastly, the sequential performance of the pension fund business was affected by lower yields on financial products.

On slide number five, lending activity adjusted for the government book had double-digit growth, driven mainly by the consumer portfolio. In the year, the corporate and commercial books grew 17% and 11% respectively, supported by short-term working capital financing. Nevertheless, long-term financing for these segments is still on hold due to the uncertainty surrounding the ongoing trade negotiations with the U.S. Moreover, our government book reduced 16% in the year, impacted by short-term maturities and prepayments for state-owned companies, as well as from different states and municipalities, given our current preference for shorter-term financing. However, our appetite to government lending remains unchanged, expecting a more dynamic second half of the year. Turning to slide number six, the consumer portfolio continues to display strong results despite a tangible economic slowdown.

The resilient private consumption, efficient architecture of our internal processes, our below-average time-to-market, and evolution of our digital capabilities have enabled Banorte to capture additional business from the market. By leveraging our hyper-personalization business model, we have developed a competitive advantage on two main fronts. One, our ability to increase origination with high-value customers, and two, a competitive risk-adjusted margin supported by our data analytics models and risk appetite. In this sense, consumer lending grew 12% year-over-year, driven by auto loans, which rose 30%, given the resilient performance of this business sector, along with our continuous efforts to further strengthen current and new commercial alliances with dealerships. The credit card portfolio increased 18% year-over-year due to greater transactional activity resulting from our improved promotions and rewards and loyalty programs for existing clients. We continue to build a sound product offering to address different demographics and income profiles.

Payroll loans grew 9% in the year, mainly due to greater demand from our clients, process optimization, and increased availability through digital channels. Finally, the mortgage book had an 8% annual expansion supported by the increased market presence, thanks to the strategic alliance with key developers, together with the optimization of our credit origination processes. Asset quality, on slide number seven, continues to perform better than expected. In the quarter, the NPL ratio stood at 1.1%, reflecting specific isolated cases in the commercial and corporate books, which have no sectorial or industry-related risks. Most of these cases are expected to resume payments during the next quarter. Consumer products are evolving ahead of expectation, given our focus on hyper-personalized origination. On the other hand, SME NPLs have been normalizing for the past quarters, in line with higher loan origination volume.

Cost of risk slightly decreased to 1.7%, supported by the assertiveness of our internal risk models and the credit growth mix during the quarter. Net fees, on slide number eight, grew 4% quarter over quarter and 2% compared to the first half of the last year, driven mainly by higher transaction volumes in consumer products and the strong performance on the acquiring business, reflecting still sound internal demand. Moreover, as we saw during the first quarter of the year, higher credit origination through the external sales force had an impact on fees paid in the period, offsetting the positive evolution of charge fees. Moving on to sustainability, on slide number nine, we have taken important actions to make our branch network operation more sustainable.

During the quarter, we received the EDGE certification for the first eight branches out of the 64 branches that we plan to certify this year, and we began the installation of the solar panels in the first 25 branches, reiterating our commitment to lower energy and water consumption in our operations. On the social side, we continue with our financial education program, reaching more than 1,000 payroll clients during the quarter. Our ongoing progress in sustainability enabled us to continue being part of the important sustainability indexes, such as the FTSE4Good Index, and we’re proud of being recognized by local authorities for our efforts in developing a more sustainable value chain with our key suppliers. Now, before asking Rafa to cover the main financial results of the group, I would like to address a few additional topics.

First, based on the results from our core operations that I just captured, we feel confident that we reaffirm our guidance for the year. We have seen better-than-expected results in our expense line and in our main risk indicators. However, other factors, such as the FX and foreign interest from the potential dividend distribution in the fourth quarter, could impact our results for the year. Second, I want to reiterate Banorte’s strong commitment to maintain the highest standards regarding anti-money laundering and to constantly adopt global best practices in this matter to protect our operations. Last but not least, regarding Vimeo, we are still evaluating the best actions to take. So far, we can tell you that we are already operating with a linear cost structure in the entity. As soon as we have additional information on this matter, it will be promptly communicated to the market.

Now, with this, I conclude my remarks. Rafa, please go ahead. Thank you, Marcos. Thank you all for attending the meeting. I would like to start with, and thank you for the questions that you always give us a day before the call after we produce the results, because that allows us to address on a very, I would say, detailed basis whatever your main concerns about it. If I go to the NII first, as you can see, what is relevant about the NII is that the loans to deposits are growing 15%. Even that number could be higher. I’m going to explain that in a bit, but loans to deposits continue to grow in a very important way, 15%.

That really is showing two things: that we have a very resilient loan book based upon the mix that we have on the fixed and the variable, and a continuous downward trend on the funding cost. If you continue to see on the table, you could see that the effect that we have on the FX that Marcos just mentioned is really reducing by MXN 887 million the effect of NII. If you extract that, because that was not provided in any way when we set up the guidance, and we are not changing the guidance, as Marcos mentioned, but that is really affecting us by MXN 887 million on the quarter. If you put that number back into the NII, you will see that the NII could expand even more than that. That number is not a small number, MXN 887 million.

Nobody was expecting the peso at the levels that it is today in that part. We have a very specific strategy to keep containing that, but that was a big surprise for that. We are trying to balance that in a, as I will tell you in a minute, Pat. It is not a small number. When you consider the impact on the results of the quarter, you have to take into account the effect that FX has on us. Why? If I go to the loan book, 15% of the loan book is in dollar terms. Obviously, we receive less results from that loan book.

If you go also to the structure of the capital notes that we have, the AT1s, we also are receiving less than expected, because obviously, even if we have a perfect FX on the FX to call policy that we have, we are paying less interest on that, using the capital base. The total amount of the capital base is being reduced by 30 basis points. That is compared to the total capital number that we have, that is 21.7, which is a very strong capital number on that part. The FX effect affecting the capital in the capital notes has effect on the dollar group. When you add everything up, that is up to MXN 887 million for the quarter on that part. If you ask me if there would be more slide or more strength on the peso side, I do not know.

Eventually, our Chief Economist will touch on that part. Once we address the NII, I would say that is the main effect that we have, but a very strong loan-to-deposit ratio that is really hovering up the loans to the deposits. Now, if I move into fees, in fees, and the end—no, in the next one, please. When you go to the NIMs, you see that the 6.4 of the NIM has to be explained. Let me just try to see why the NIM continues to be very resilient. That NIM, once you add the 8,800 that I just mentioned about the FX, that NIM is basically being extremely resilient. If I’m going to give you two numbers, if you go to May 2024, the reference rate was at 11.06. If you go to May 2025, the reference rate is at 8.55.

When you look at the spread of the book, the spread of the book has only been reduced by four basis points. When you see a strong reduction of 255 basis points from the reference rate, the strength of the balance sheet that we built based upon the fixed rate and the continuous downward trend on the funding cost allow us to have an effect of only four basis points on the spread. That is extremely, extremely relevant. That will continue to benefit in the coming months as the downward trend in the rates continue to happen. If I now look at the banking fees, the banking net fees, as Marcos explained, you have to remember that when we have a very strong growth in the mortgage group and in the car loans, part of that mortgage group is sold by the branches online on the digital capabilities.

Still, some of that happens with the alliances that we have with many brands in the market. When you have those many brands in the market, you have to have a specific salesforce devoted to those dealers. You have to pay in front the fees that you have for every one of those sales that happen at the dealers. That is pushing the fees paid up. The advantage of that is you pay that fee once and you get the benefit of the full loan for the life of the loan. If we continue to grow the consumer group at the pace that we are growing the consumer group, and we think that we can continue to do so, you will continue to see this compression of the net fees. Eventually, when you see that on the margin on all those, that will be more than compensated.

The other fact that you need to see on the fee side is that everything that is on the digital side continue to expand very, very nicely. If I move to the next one, the sensitivity on the balance sheet is only 20 million. That shows exactly the good work that the bank has been doing on preparing the balance sheet for the scenario that we’re seeing on the rates, but also allowing us, based upon the mix that we have on the portfolio, to expect a continuous evolution and sustainability on the margin side that we have been enjoying in the past year. On the dollar book, as you know, there’s more lack of certainty, and most of the loans on the dollar books are in variable rate, not in fixed rate. We have to be much more flexible on the dollar book.

That, as I already told you, is 15% of the book. If I move now to the profitability of the bank, Marcos already touched on this, but I would like to stress one thing. On the ROA, we continue to expand. The ROA, if you look at the first quarter to the second quarter, we grew from 2.4 to 2.5. On the return on equity, we grew from 28 to 30.2%. 30.2% on the return on equity. With our strong capital base and taking into account that we are the least leveraged bank in the system on that part. We continue to have a reasonable growth of the bank net income, very strong return on the equity, and a continuous evolution on the return on assets.

If we go now to the next one, we always project this because based upon the fact that we have on the regulatory terms on the, I would say, insurance annuities company, we basically split the NIM without the insurance and annuities and the NIM about the group. It is basically to show you without that effect that sometimes the inflation has on annuities. We are staying at 6.2 at the group level. If we now go to the cost of funds, cost of funds is trending. Now you see it will, some of you will say that it’s a small decrease on the 48.1. You have to remember that based upon the position that we have on the time deposit base, we have to wait for three months to have the full effect of every time there’s a reduction on the rate.

You will continue to see that number trending down on a monthly by monthly basis. That has shown why when you look at the NII and when you look at the effect on the NIM, that number will continue to be quite supportive for the expansion of the NIM. If I go to the asset quality, and some of you called us yesterday about that, I will ask Gerardo in a minute to go on this. There is something that some people say, well, there is some pickup on some of the, if you look at the NPLs. You have to look at this in an overall piece. Some of you asked me specifically about the SME. I will touch that. SME, as you know, we have a very low number of NPLs coming down as low as 1.1% during, after the pandemia. That started to pick up to 2.2%.

Compared to the 6.2% that we used to run that portfolio, it is extremely low. Now, you see a slight pickup. Many actions have been taken there to address that. You will see a continuous downward trend, but you will see the full effect up until the first quarter of next year. When you look at the cost of risk, and Gerardo will explain why the cost of risk is going down and the NPLs have a very slight pickup on that part. The cost of risk continues to be better than expected. If you look at the guidance that we gave, we are staying at 1.7%. If you strip the RAPI joint venture, we have 1.6%. It is going better than expected. Right off, because many people sometimes think that Banorte has the policy to immediately write off when we see a spike on the portfolio.

We never do that. As you can see, there is a very, very level trend on that part. Credit provisions also going down, notwithstanding that we are growing the consumer portfolio, that you know requires a lot of provisions on day one. I will turn to Gerardo to try to address things about the risk that you were concerned about yesterday. Yeah, thank you, Rafa. As you have seen in our report, five key credit risk metrics have presented a very interesting dynamic. You have seen that NPL and NPL formation has gone up. Cost of risk going down, lower provision charges also are taking place, and also the coverage ratio is going down. If you put together a very brief and executive explanation of these five key credit risk metrics, I will tell you the following.

During this second quarter, the NPL ratio and NPL formation rate increased, reflecting a moderate deterioration in asset quality, primarily driven by commercial lending specific cases of idiosyncratic nature. Up to now, there is a very slight reversion or normalization, as Marcos said, taking place in comparison with record low levels of both NPL and NPL formation. To be clear, the bank maintains a very disciplined and forward-looking approach to credit risk. The increase in NPLs was partially anticipated, and the underlying exposures are, in large part, well-collateralized and supported by solid recovery prospects. Despite the uptick in non-performing assets, provision charges declined, resulting in a lower cost of risk. This is attributable to three factors. First, better recovery prospects. Second, better origination in low-risk segments in the retail loan book. And consequently, newer vintages that are of even higher credit risk quality.

As you have seen, at the same time, the coverage ratio declined modestly, yet remains within the bank’s strategic risk appetite and comfortably above regulatory requirements. The bank continues to maintain robust reserve buffers with coverage ratios that are appropriate given the credit quality and expected recoveries of the portfolio. Overall, to just end my commentary, while credit quality trends warrant close monitoring, the bank is well-positioned to manage potential stress scenarios supported by proactive risk management, adequate capital buffers, and conservative provisioning accumulated in prior periods. Thank you. Thank you very much. That explains exactly where we are in that. We are always vigilant. There is something that has to be mentioned here.

When you see that Banorte is growing on the consumer group the way it has been growing, that I think is in a quite important way, is with a very disciplined credit policy that we have not changed in more than five, six years, that we address the market in a very specific way. If we like the risk and we like the client, we can be aggressive even on the price, but never on the risk. That has allowed us to sustain permanent growth from the consumer group because some people have asked us that if you see a market that basically is not growing based upon a very lack of growth on the economy, how Banorte is growing at the pace that it is growing on the loan book, especially on the consumer side. I will not diminish the corporate and the commercial also.

The reason is that we are taking market share, not because we are chasing the market share number, but because based upon the process as Marcos mentioned and the digital revolution of the bank, we have been a very convenient bank for our clients. Since we price the client based upon the risk of each different client and the value that client brings to the bank, that allows us to really have a very differential offer into the market. When you see a compression in the economy in the way that Mexico has been seen, the only way that you can grow your portfolio is that you are considered one of the best options in the market. I think that’s why the reason that Banorte has been growing the consumer book and also the commercial and the corporate on that part.

If I now move to the expense piece, and this is something very important that Marcos mentioned, when you see a pickup on the expense line, and we touched that point in the last call, what we are doing is taking advantage basically of the expenses that we have in dollars. We are advancing expenses on that, and we are normalizing the expense line. I’m going to tell you a number. When we set up on the guidance at the beginning of the year, we set up the guidance that we will be on a double-digit number. Now, I can assure you that by the end of the year, we will be on a one-digit number on the expense line. That will compensate the lack of the effect that we have on the valuation based upon the price that the peso has today on the effects.

We are doing all the efforts on the expense line to be one digit by the end of the year instead of the two digit that we have been experiencing in the past two years, to go down to one digit to allow us to compensate the other issues that we have on the effects side. Another thing that is relevant to notice is that some people have been asking us about the effect that we are having about the fintechs on the funding side. I can give you very specific numbers that are, I would say, are relevant. Non-interest bearing deposits, as we see today, are growing at 8%. The time deposits are growing at 11%. When you look at the overall growth in demand deposits, with zero cost and with cost, we go to 11%.

As you can see, we continue to grow the funding at a very reasonable cost, at a very good pace. The expense line that you see here will be, again, in the third quarter, you will see a slight pickup in the third quarter or even a level against the second quarter. You will see a huge drop in the fourth quarter when the full effect of all the actions taken will take place to put us on one single digit number for the expense ratio. Okay, if I now move into the capital ratio, capital ratio, as we mentioned, is back again to the, remember that on the first, on the fourth quarter, we set up for the dividends that we pay in May. So that reduced for 13.2, then regaining 14.4. And now we are back around 14.10 on the quarter one. The total capital ratio is 21.7.

As we mentioned, the effect of the effects on the capital ratio is around 30 basis points, well above any requirements that the authorities have. One other important thing to mention is that the LDR that usually Banorte has been basically around 100 and 102, 103. Now we are below 100, around 94-95 on the LDR. Okay. I will also try to address an issue that was sent to us yesterday. And thank you for the question about the impact on the trading gains. Trading gains, as you have seen on the graph and on the red line, trading gains for us is a flat line.

But based upon the position and the size of the balance sheet, if you compare what was the effect of the trading gains on the revenue composition, if I take 2014, when we start to address that big number that was coming from trading on the overall revenue composition of the bank, was topping 8%. Now, if you see the number, it is usually around 4-5-6% as currently is at this level. We have not changed our policy that we basically use the trading for the sake of our clients on that part. Obviously, we had a good month, and we love to have good months, but not because it is basically the size and the positions that we hold at the bank.

If I go to the guidance, and Marcos already addressed that, we are not changing the guidance, but, as I mentioned to you, we will be looking at a single digit number on the expense growth for the end of the year. Do not get nervous if on the third quarter you continue to see a high double digit cost number because that will drop substantially in the fourth quarter to have a full year at only one single digit number. With that, I close my remarks. Thank you, Marcos and Rafael. We will now move to our Q&A session. As always, we kindly ask you to present only your most relevant question, and we will be happy to take any other questions anytime after the call. Questions will be ordered on a first-come, first-served basis.

Please raise your hand on the platform, and we will unmute you when your turn comes. Jose Luis and myself will be calling the name of the person that is next on the line. If there are any technical difficulties, please let us know by using the chat. Thank you. We are now ready to start the Q&A. We’ll begin with Tito Labarta from Goldman Sachs. Tito, please go ahead. All right, thanks, Tomás. Good morning, Marcos, Rafael. Thanks for the call and taking my question. I guess my question is, I guess, on the NII, I guess two parts. First, on the FX, right? I think you mentioned you expect to end the year around 19.50, but it’s still a little bit stronger than that. Just could there be just further impact from that if you know the currency stays at around this 18.60 level or even appreciates more?

Just to think about any hedging you could do to offset that, or should we just expect if the FX continues to appreciate, there should be some further downside risk related to that? Conversely, if the FX does go to that 19.50 or depreciates, would you be able to reverse some of that negative impact that we saw this quarter just to try to think about the overall FX impact? And then the second question, also related to the NII, more on the loan growth, right? Because Marcos, you mentioned second half of the year should be more challenging. I mean, you’re still doing good on the loan growth, asset quality holding up. Could there be some downside risk to loan growth from here just because the economy is slowing? There’s still a lot of uncertainty. Any concerns about loan growth slowing further? Thank you. Thank you, Tito.

The first one, you are right. The FX continues to strengthen. Obviously, we will produce the same amount in dollars, but it’s going to be less pesos, and it’s going to hit us a little bit. I see more upside than downside right now. 19.60, and we already swallow all the FX program, but it’s not a problem, the FX reality. If it returns to 20.20 something, yes, we will reverse that, and we will earn more, and we will explain that. If it goes to, I don’t know, 17 something or 18, yes, it will hit us a little bit more. From my point of view, we already took the hit, and this is it. That’s my point. The second one, yes, everybody’s concerned about the loan growth.

Let me tell you that the first semester we grew 0.2%, and now we are expecting to grow 0.5%, which is more. The second semester looks better than the first one in terms of growth. That is going to give us an idea that maybe it’s not so bad for the next quarter, the next semester. We are working hard and trying to get to the objective, but it seems that it’s feasible and we can do it. I don’t know, Rafael, if you want to do something. No, I think I would touch also on the first one, Tito. The FX, you have to split the effect on that. On the dollar book, it hit us in a direct way. I mean, on that part.

We have funding in dollars, and that funding in dollars goes to the dollar book, and the dollar book gets converted to pesos, and that’s the effect that we got. On the AT1s, because there were some concerns also on the AT1s, the AT1s, as you remember, we hedged to call on the AT1. We basically buy bonds UMS to match perfectly the AT1s. The effect that you have in that is that the money that you take from the capital base is less than what was supposed to be. Also, you have a reduction this quarter of 30 basis points on the total cap because our position in AT1s is around 31% of the total capital base. That is perfectly hedged. That is something that needs to be addressed in a very important way. We don’t need to hedge more the AT1. The AT1s are hedged on day one.

If by contrary, the peso weakens more, then you have a pickup on the capital base because of the value of the AT1s. The AT1s are perfectly hedged. The other one, the dollar book, is being basically hedged in the way that you have the funding, and you basically use the tools that you have to hedge the funding base. Honestly, it’s more a direct effect on this part. As Marcos mentioned, I think honestly, and Alejandro, that is our Chief Economist, could give us more view about the peso if you want. Yes, for sure. Thank you, Rafa. Thank you for the question, Tito. This is Alejandro Padilla, Chief Economist. As Marcos and Rafael were mentioning before, we think that there are some conditions that support our view that the Mexican peso should go back to a more normal level.

Indeed, I would like to mention that our real exchange rate models and other types of models that we have suggest that the fair value of the Mexican peso should hover around 19.20. That is why in our trajectory of the FX for the rest of 2025 and for 2026, we have figures hovering around that number. By the end of the year, we need to take into account that Banxico most likely will continue cutting rates. Currently, we are in a very tight spread between the interest rate in the U.S. and Mexico. We are forecasting 100 basis points of rate reduction in Mexico and only 50 basis points in the U.S. The spread between Mexico and the U.S. will continue declining, and that will put a bit of pressure on the FX by the end of the year. That is our main scenario.

The other one is that we have to take into account that by the end of this year, Mexico will be closer to the U.S. in terms of the revision of the USMCA, although the revision will start in 2026. The process or the initial process is likely to start by the end of this year. That will also put a bit of pressure in terms of all of the threats that President Trump will put on Mexico in order to have better negotiating conditions. All in all, I think that from the macro perspective, although the actual performance of the Mexican peso is explained by a strong deterioration of the U.S. dollar, I think that by year-end, we could reach something closer to 19 or 19.50, which are at levels suggested by our models. Great.

Now, I mean, of your other question, Tito, in terms of the economy, as Marcos was mentioning, some of the figures for the second quarter of this year, yes, we will be growing between 0.2-0.4 on a quarterly basis. The preliminary number will be released on July 30, but we think that the second quarter will be similar or slightly better than the first quarter. Thinking about the second half of the year, I think that private consumption associated with services mainly will continue to be part of the main drivers of the economy. So far, we have been observing manufacturing goods performing relatively well, supported by the idea that U.S. firms are putting some orders ahead. They are accumulating inventories in order to avoid the effect of the tariffs from President Trump.

So far, I think the second half of the year will be very similar to what we have been observing in the last months. That is why we are maintaining our GDP forecast for the entire 2025 of 0.5%. That is very clear, very thorough. Thank you for that. If I can just one quick follow-up on the loan growth, because I think Marcos, you mentioned you still expect the government portfolio to grow, right? It’s come down quite a bit this quarter. As that government portfolio starts to grow again, could that put any negative pressure on margin just from a mix perspective? Just to understand between the different segments how that could impact them also. Thank you. No, go ahead, Rafa. No, no, no, Tito. Remember that the effect on the margin will be benefit by a lower funding cost.

We don’t see any effect because if we grow the book on the government side, I don’t see a real material effect on the margin. I think the margin will continue to be quite strong and sustainable the way they are through 6.4, 6.5, 6.6. The effect of the government book, if it starts to grow, will not affect the margin in that way. Okay, that’s very helpful. Thanks, Rafa. Thanks, Marcos. Thank you. We’ll now go with Juri Fernandez from JP Morgan. Go ahead, Juri. Thank you, Tomás, and good morning, Marcos. I will go back to the coverage and Gerardo and Rafa already provided a good color on this on why the coverage was down and the collaterals.

Just trying to understand here, your view here is that the NPLs will go down and coverage ratio will eventually go up, or this is the new level for coverage here that you’re comfortable given you are not seeing a major worsening on asset quality. I just would like to understand a little bit more because even the economy is weaker, and this was not only on the corporate side, this was SMEs, as you said, and also a little bit of credit cards. My concern here is that a weaker economy will continue to drive, not major, but marginal NPL worsening, and you already consumed a lot of coverage. Just trying to understand a little bit more. If you can provide more details, I would appreciate it. Thank you. Thank you, Juri. I think Dr. Salazar was right. Thank you. Thank you, Marcos. Juri, you’re right.

What we have learned from past cycles, from empirical patterns, is that in the retail side of the loan book, you could see some sensitivity to slow growth or even a recession. That is considered high in SME loans, medium to high in credit cards, medium in auto loans, low to medium in payroll lending, and also lower in mortgages unless there’s a housing crash, which is not part of our central scenario. A very good question remains. If we keep up with the loan growth that we have talked about. You will see that the main reasons for that expectation, even in low growth GDP conditions, are mainly four factors, Juri. One is that GDP is not equal to credit demand directly, at least.

That is, credit demand can still rise due to liquidity needs, refinancing, or working capital pressures, even if economic output goes slightly lower growth or even contracts. The second reason for this expectation is that there is an opportunity to gain market share. We can see that in these type of cycles, some weaker or more conservative competitors tighten lending, opening space for well-capitalized banks to expand carefully. The third reason is that we could encounter some segment-level divergence. Some sectors and households may remain resilient or even behave as counter-cyclical. That type of behavior could be found in segments like healthcare or food, payroll-backed lending, among others. The last factor that supports this loan growth scenario is flight to quality. That is important because customers may leave riskier lenders or fintechs, preferring stable banks with attractive effort, given Banorte loan growth without loosening trade standards.

Those are the four main premises that support that loan growth expectation. Also, we are very well aware of what to expect in different segments of the loan book that could eventually behave in the way I just mentioned at the beginning of this comment. No, super clear. I guess the Mexican, you know, overall, you were overall with low leverage, right? Even growing in the past maybe two or three years, I think leverage is too low for this system, right? Yeah. If I may just touch on one half on the expenses, something that we noted here was Binel, decreasing a lot the G&A, personal fees, and I’m going to, you know, like personal expenses. If you can comment on Binel, like if this is also part of your guidance on expenses to go to the single digits by year-end. Rafa, Rafa.

No, I think Binel is just part of the overall effort that we have on the expense line. I think the expense line has been a continuous effort that if you look at the recurrent base of the expense ratio of Banorte, the recurrent base has been quite steady at 6%-7%. When you start reducing the effect of Rappi and Binel, you start getting some benefits about this, but also a lot of other initiatives that have been taken in place. I mean, automation is coming, easing to the bank because of all the investment that we have been doing in technology. When you look at the ratio of the administrative expenses and operational expenses to total revenue and net income, that continues to trend down. That is also another very important source of the way that we are reducing the cost.

And taking advantage also of the dollar weakness, we are taking advantage of that on the payments on the software base that we have. It is a lot of actions, not just Binel and Rappi. No, thank you. Thank you, Rafa. Thank you all. Thank you, Juri. Thank you. Now we will continue with Ernesto Gabilondo from BofA Securities. Ernesto, please go ahead. Thank you, Tomás. Hi, good morning, Marcos and Rafa, and thanks for the opportunity to ask questions. I have a follow-up also in terms of OpEx. You mentioned it could be favored by FX, by Binel. But can you give us some other examples of some of the expenses that you have anticipated or some of the expenses that you can cut, especially in the last quarter? I have a second question in terms of asset quality.

You mentioned there were some isolated cases in the commercial portfolio that showed higher NPL ratios. I know that you cannot disclose the names, but can you share which type of industries were related to those loans? Thank you. Thank you, Ernesto. The first one, one example is that all the dollar-denominated payments that we need to do for this year, instead of waiting until the end of the year, we are paying that in advance, no? That is why you will see that this always happens all the years, that this step in the cost line is going to be reduced. That is why we feel comfortable that it is going to be below 10, the total expenses. One big one is the dollar-denominated assets that we are already doing since now, and you will see it there.

About the, as we said, we do not have any sectorial or geographical problems. We have two minor problems with specific companies. I do not know if we can take the sector only. Yeah, this is really a very mixed selection of economic activity. One of the cases is related to non-bank financial intermediary, which is a small to medium size. Another case is related to energy or oil and gas, which is a very specific project that could represent problems on its own. There is not a sectorial explanation for these low trade risk, low risk quality performance. There are just two examples, Ernesto, that those sectors are not related, do not belong to the same geographic zone in which they operate, and that will give you some color regarding asset quality and NPL cases. Perfect. Now, thank you so much. Just one last one.

In terms of the potential special dividend. When can we expect any announcement on this in the next quarter? If it could be similar to the one you paid last year? We’re running the numbers. We still don’t know. It depends on everything. Yes, it would be announced the next quarter. We already have the permission. If it’s feasible, we can do it. It’s only a matter that the numbers are right for us and for you. That’s it, Rafa. I don’t know if something else. No, as you said, Marcos, in the third quarter, it will be announced. Excellent. Thank you so much. Okay. Thank you. We’ll now go with Renato Meloni from Autonomous. Go ahead, Renato. Hi, everyone. Good morning. Thanks for taking my questions here. I would like to go back to asset quality, but particularly in consumer, right?

There was another deterioration here on stage three loans for credit cards. I wonder if you could comment a bit on that. Further and connected to this, I’m wondering here, how do you expect to keep growing in consumer lending at the same pace with the same asset quality, right? I think going back to your earlier comments, you’re saying that your competitors are tightening credit. Does that imply some adverse selection here for you? Thank you. We will start with the second one with Rafa, please. No, no. Remember that if you look at the information from the CMBB, Banorte has a very specific way that we compete in the market. First, we compete by individual. We don’t compete by a general offer to the market. The second one is that we are always very strict in risk.

The way to avoid negative selection is that if you look at the market and the people that are worth because of the risk, they will always get the best deal in Banorte. That really takes away the possibility of negative selection. We never play the game that high interest rates that we charge on the loan will eventually cover the losses. We never follow that policy in that part. What we do is we look at the client, we see the risk of the client, what’s the value of the client, the potential value of the client, the relationship that the client has with us, and the relationship that the client has with other banks. Then we set up the offer for them. The main issue has to be that we like the risk. That’s the way we avoid negative selection.

Don’t think that we are getting market share because we are pushing the pedal by getting clients. No, it’s because we have better processes, better offers to the clients on a one-to-one basis. Also, if you look at the NPS that we have at the bank, at the branches, and at the digital offering that we have, NPS are around 85, 8