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1 Strategy and Perspectives for 2008 Banorte Investor Day November 15, 2007.

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Presentation on theme: "1 Strategy and Perspectives for 2008 Banorte Investor Day November 15, 2007."— Presentation transcript:

1 1 Strategy and Perspectives for 2008 Banorte Investor Day November 15, 2007

2 2 1.Results Overview for Asset Quality 3.Industry Trends 4.Outlook for Final Remarks Contents

3 3 1. Results Overview for 2007

4 4 YTD Financial Recap CONSTANT MILLION PESOS Performing Loan Growth Past Due Loan Ratio Net Income ROE Stock Price Book Value P/BV Net Interest Margin Tax Rate 9M079M06 23% 29% 4,548 11% % 24% % 5, %34% 25%23% % 1.5% 23%11%

5 5 Comparable Results Net Interest Income10,547 9M07 12,301 17% Non Interest Income5,1985,887 13% Total Income15,74518,188 16% Non Operating Expense9,52110,422 9% 9M accounting standards CONSTANT MILLION PESOS

6 6 Efficiency Ratio 59% % % 57% 2005 Sep07 57% 53% Accounting + Investments Efficiency is moving towards our medium term target of low 50s.

7 7 Net Income CONSTANT MILLION PESOS Recurring Non Recurring 9M04 4,122 9M05 4,548 9M06 1,871 5,044 9M07 CAGR 39% 4,838 4,748 Recurrent profits continue to improve on a yearly basis.

8 8 Net Interest Margin vs CETES PERCENTAGE Average CETE: 9M05: 9.39% 9M06:7.25% 9M07:7.13% CETES NIM Q054Q051Q062Q063Q064Q061Q072Q073Q07 87% 107% Average NIM for 2007 and 2008 should be close to 7.5%.

9 9 Evolution of Loans & Deposits Performing Loan Portfolio (YoY) 23% 3Q06 22% 3Q05 Core Deposits (YoY) 17% 3Q06 3% 3Q05 29% 3Q07 20% 3Q07 12% 3Q04 8% 3Q04 The current Loans to Total Deposits ratio is less than 85%.

10 10 Core Deposits CONSTANT BILLION PESOS Mix Demand Time Demand Time Total Deposits 3Q053Q073Q % 39% 100% % 37% 100% % 37% 100% 20%17% 16% 28% 18% 16% YoY Change w/o INB 11%7%10%

11 11 CONSTANT BILLION PESOS Performing Loan Portfolio 3Q062Q073Q07 QoQ Change YoY Commercial Corporate Government Total Consumer YoY w/o Extras 3Q062Q073Q %5% 32%(1%) 32%4%4% 29%5%5% 17%6%6% %23%

12 12 Performing Consumer Loan Portfolio CONSTANT BILLION PESOS QoQ Change YoY YoY Change w/o Extras Consumer Car Loans Credit Card Payroll Loans Mortgage 3Q062Q073Q07 3Q062Q073Q %1%1% 45%7% 24%6%6% 17%6%6% 10%6%6% %23%

13 13 Transformation of the Loan Book Commercial & Corporate 23% Government & Fobaproa 69% Commercial & Corporate 56% Mortgage 19% Government 10% Mortgage 6% Consumer 2% Consumer 15%

14 14 Evolution of Savings in Mexico Deposits 54% Brokerage 20% AFORE + Insurance 21% Mutual Funds 8% Deposits 42% Brokerage 21% AFORE + Insurance 28% Mutual Funds 12% Source: Banco de México, CNBV and SHCP

15 15 Evolution of Credit in Mexico Corporate 67% Mortgage 12% Consumer 12% Government 9% Corporate 39% Mortgage 14% Consumer 29% Government 18% Source: Banco de México, CNBV and SHCP

16 16 Key Metrics

17 17 Infrastructure Distribution network 9M07 Branches ATMs POSs 1,023 3,513 26,627 Employees17, ,033 19,050 15,410 9M06 5% 16% 40% 12%

18 18 Footprint Expansion (Branches) ,023 Sep

19 19 Assets under Management Bank Brokerage Long Term Savings Sep CONSTANT BILLION PESOS

20 20 Customers Bank Afore Insurance Sep07 MILLIONS

21 21 2. Asset Quality

22 22 Asset Quality Past Due Loans Loan Loss Reserves RESERVE COVERAGE PAST DUE LOAN RATIO Total Loan Portfolio CONSTANT BILLION PESOS 3Q062Q073Q % 172% 141% 3Q062Q073Q07 1.5% 1.6% 1.5% 3Q062Q073Q07

23 23 Past Due Loan Ratio 2.0% % % % 1998

24 24 Sep06 3.7% BanorteOther Major Banks 4.6% Sep07 5.1% BanorteOther Major Banks 6.3% Credit Cards PDL Ratio vs. Industry Source: Asociación de Bancos de México (ABM)

25 25 Mortgage Loans 2.5% 2.9% 2.4% 3.3% BanorteOther Major Banks BanorteOther Major Banks Sep06Sep07 PDL Ratio vs. Industry Source: Asociación de Bancos de México (ABM)

26 26 Conservative origination policies Formal economy Low LTV of loan book 52% House value > 300,000 pesos Adequate payment mechanisms Transparency in terms and conditions Mortgage Loans

27 27 3. Industry Trends

28 ,801 1,541 1,359 1, ,730 1,451 1,347 BancomerBanamexHSBCBanorteSantanderScotiabank Branch Network Banorte 2007e = 1, % +1% +5% +18% Industry growth: +7% +6% Sep06 Sep07 Source: Asociación de Bancos de México (ABM)

29 29 5,161 5,947 5,618 3,837 3,513 1,257 4,731 5,542 5,353 3,321 3,036 1,122 ATM Network +7% +9% +5% +16% +12% Sep06 Sep07 BancomerBanamexHSBCSantanderBanorteScotiabank Industry growth: +11% Banorte 2007e = 3,669. Source: Asociación de Bancos de México (ABM)

30 30 Cost-Weighted Core Deposits BBVA Banamex HSBC Santander Banorte Scotiabank 32% 24% 6% 10% 16% 12% 29% 25% 17% 12% 5% Market share Source: Internal calculations with data from Asociación de Bancos de México (ABM)

31 31 Growth Sep06 – Sep07 Cost-Weighted Core Deposits Banorte 16% Market 6% Source: Internal calculations with data from Asociación de Bancos de México (ABM)

32 32 Performing Loans BBVA Banamex HSBC Santander Banorte Scotiabank 31% 23% 14% 9% 13% 10% 34% 20% 15% 7% 12% 13% Market share Source: Asociación de Bancos de México (ABM)

33 33 Performing Loans 29% 28% Banorte Market Growth Sep06 – Sep07 Source: Asociación de Bancos de México (ABM)

34 34 Mortgages 34% 25% 8% 9% 14% 10% BBVA Banamex HSBC Santander Banorte Scotiabank 45% 14% 12% 11% 9% 8% Market share Source: Asociación de Bancos de México (ABM)

35 35 Consumer Loans 31% 26% 8% 9% 15% BBVA Banamex HSBC Santander Banorte Scotiabank 11% 34% 25% 17% 13% 7% 5% Market share Source: Asociación de Bancos de México (ABM)

36 36 Credit Card Outstandings Banorte 46% Market 31% Growth Sep06 – Sep07 Source: Asociación de Bancos de México (ABM)

37 37 Government + Corporate Loans BBVA Banamex HSBC Santander Banorte Scotiabank 31% 21% 7% 13% 17% 10% 30% 21% 17% 15% 12% 5% Market share Source: Asociación de Bancos de México (ABM)

38 38 Government Loans Banorte 40% Market (3%) Growth Sep06 – Sep07 Source: Asociación de Bancos de México (ABM)

39 39 Past Due Loan Ratio Sep06 Sep07 Industry Average: 2.4% 2.6% 2.2% 2.5% 2.1% 1.6% 0.9% 3.4% 2.8% 2.6% 2.5% 1.5% HSBCScotiabankBanamexBancomerBanorteSantander Source: Asociación de Bancos de México (ABM)

40 40 Reserve Coverage Ratio BancomerSantanderBanamexBanorteHSBCScotiabank Sep06 Sep07 Source: Asociación de Bancos de México (ABM)

41 41 4. Outlook for 2008

42 42 Progress of 2007 Initiatives Expansion of Distribution Network Integration of Banorte USA Ramp-up of Credit Card Platform Re-focus Long Term Savings business Bancarization of lower income segments Plan: 29 new and 41 renovations Actual: 52 new and 18 renovations Offshore deposits Cross-border mortgages From 172,000 to 1.5 million cards in the last 3 years Annual growth of 50% in outstandings New fees in AFORE: Growth Change in management Entry level deposit products Remittances

43 43 Low correlation between banking sector and economic growth Balance between growth, asset quality and profitability Execution of infrastructure expansion program Greater focus on deposits and fee income Explore alternate channels Challenges 2008

44 Initiatives Distribution Network Banorte USA Micro-lending business Deepen Bancarization 50 new branches + 50 renovations 600 ATMs Investment: US $45 million New markets / products Organic growth Emphasis on asset quality Overhaul of business model Alternate channels Broaden customer base Emphasis on SMEs Heavily under-banked Next secular growth story

45 45 Loan growth: +22% - 24% Average NIM: 7.5% Efficiency ratio: below 55% Net income: Ps $8.0 billion EPS growth: +18% - 19% ROE: +/- 22% Outlook for 2008

46 46 5. Final Remarks

47 47 Medium Term Strategies Take the fullest advantage of growth opportunities in the Mexican Financial Sector: Innovating Developing competitive products Penetrating new markets Investing intelligently In talent In infrastructure

48 48 Medium Term Strategies Alert to a more dynamic & competitive environment: Old and new forces Client loyalty and retention New income segments Alternate distribution channels

49 49 Medium Term Strategies Maintain 20/20 vision: Focus on core earnings Efficiency Emphasis on asset quality Balanced funding Robust capitalization Positive operating leverage Cost containment

50 50 Certain statements in this document are forward-looking statements. These statements are based on managements current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in these statements due to a variety of factors.

51 51


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