Untitled - Carlos Rojo Macedo

GLOBAL BUSINESS AWARDS
COVER STORY
GFI: FINANCING MEXICO’S
DEVELOPMENT
An interview with Carlos Rojo, CEO,
Grupo Financiero Interacciones
C
arlos Rojo has led Grupo Financiero
Interacciones to a strong market
position by successfully executing
a strategy that specialises in government and
subnational infrastructure lending in Mexico.
With its lean operating structure and low risk
business model, the company delivers results
for investors that consistently outperforms
market expectations.
The European caught up with CEO,
Carlos Rojo, to discuss the growth of Grupo
Financiero Interacciones and to find out more
about how the group operates.
Q: How would you define Grupo Financiero
Interacciones (GFI) and the success it has
achieved so far?
Carlos Rojo: We define ourselves as a bank
holding company that specialises on providing
financial solutions for infrastructure projects
to the government sector in Mexico. The
government sector is a broad space, so we
focus exclusively on the sub-national sector,
which encompasses states and municipalities
to whom we provide our financial and advisory
services. The advisory part is very important, as
we have become experts in this specific niche,
allowing us to provide advisory for specific
projects before any financing is needed. This is
how we have been able to provide 20% returns,
while mitigating the implied lending risk, as
our NPLs are 0% in all of our business lines.
Q: Given that you service the government,
does your company have any allegiance with
political parties in Mexico?
CR: No, that was a common belief, when we
did the IPO and before then, however, we have
been doing business with states governed by
all the three main political parties in Mexico,
and given our advisory capabilities, it is actually
beneficial for us, when there are changes in
government with transitions between political
parties.
Q: Currently, the credit market in Mexico
is not performing as originally projected;
moreover, the economic growth in Mexico
has been revised downwards on a number of
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occasions. What are your expectations and
how do they reflect your strategy?
CR: Historically, GFI has always outperformed
the market, even in an environment like the
one you are describing. The reason for this
goes in hand with why we have not been
affected by the downwards revisions in GDP
growth. While revisions might make the
financing of projects slower during a given
year, the market we service is such a small
part of the entire Mexican GDP, that it gives
us ample opportunities for growth even in
challenging environments, such as the one we
are experiencing this year.
“With our flexibility and
fast response to our
client’s needs, by the
time other banks approve
a loan, we will have not
only already financed the
project, but also most
likely received payments
from that loan”
Q: Provide us a brief history of the group,
and also please outline your strategic
philosophy.
CR: GFI’s history starts in 1966 with an
insurance company. Later in 1987, Carlos
Hank Rohn founded the brokerage company
and in 1993 founded the bank coupled
with the establishment of the bank holding
company in 1994.
In 2000, Carlos Hank Gonzalez became
CEO of the company and designed the
strategy we have been focused on for the
last 49 quarters. We have been profitable
every quarter, with upward trending yearly
earnings since that time and it’s a trend we
are looking to continue as we write the future
history of our company in the years ahead.
Our global strategy will remain the same in
terms of our specialisation but innovation
will play a crucial role in our success. We
have been working diligently on innovating
our financial solutions for our clients so
that we have a wider array of products as we
capture a greater share of the market.
Q: What is your projected growth for 2015
in terms of loans and deposits?
CR: Our projected growth has always
followed the rule of the “20s”. In other words,
loan growth approximately 20%, earnings
growth approximately 20% and ROE
approximately 20%.
This year, given the demand in
infrastructure, we perceived in the first
months of 2015, we provided the market a
loan growth guidance of 20% to 25% and
earnings growth of 17% to 21%. Since before
the IPO, we started a deposit growth strategy
that has allowed us to grow deposits at a
similar rate than that of loans today; thus, we
are expecting a year-end deposit growth rate
between 20% and 25% as well.
Q: It is sometimes implied that a business
focused in the government sector could
be subject to corruption. How do you
avoid conflict in this regard and conflict of
interest overall at your firm?
CR: GFI has always been characterised for
having one of the most robust corporate
governances in Mexico. We have a 50%
independent director composition, with
extensive experience and prestige in various
industries, who take part in our core decision
making committees.
All decisions at GFI are made centrally, in
other words, every loan that is currently on
our balance sheet has been approved on a
consensus basis in these committees, which
as I said, are composed by management
members, as well as independent directors
and members of our different business
units. This is how we nullify any conflict of
interests and potential malpractices that,
although unlikely, could arise at an operating
level.
GLOBAL BUSINESS AWARDS
Carlos Rojo, CEO,
Grupo Financiero
Interacciones
www.the-european.eu l 55
GLOBAL BUSINESS AWARDS
COVER STORY
Q: We can see from your financial data that
you have a surprising 0.13% NPL. How
have you been able to achieve this and how
sustainable is this over time?
CR: All our decision making at GFI is
centralised and based on a very strict discipline,
approving only those loans that comply with
our asset quality standards versus return.
Moreover, the loan structures we typically
use, allow us to have 93.19% of our portfolio
collateralised by the federal government, which
makes investing in GFI similar to investing in a
governmental security but with a much higher
yield.
Q: What is the difference between you
Banorte or other bigger banks that also
service the government sector? How can you
be successful in this market given the size of
these banks?
CR: This is a crucial question, given that
there are many banks that focus on the
government sector but at different tiers or
levels. GFI focuses exclusively on subnational
infrastructure projects, which because of
their size, do not attract competitors, whose
cost base is much higher than that of GFI.
GFI does not have any branches, just seven
business centres from where it carries out both,
loan and deposit origination. In addition to
this, we are a highly specialised group, where
all employees play a role in the creation of
value to our clients through our advisory and
financing services aimed exclusively at this
tier level of government lending. Other bigger
banks tend to focus on projects that are, from
a profitability versus cost stand point, more
feasible and you will see them involved in the
big federal projects in Mexico. These type of
projects don’t entail intensive advisory and are
very convenient for the bigger banks in terms
of the revenue stream they represent versus
the cost structure they have. At GFI, we are
not concerned about size; we are focused on
profitability and specialisation carrying out
both, the financing of these projects as well as
the advisory. This is why you will always see us
among the first three places in terms of ROE
and NPLs among banks in Mexico but among
the first 10 in terms of assets.
Additionally, another main factor that
makes GFI different, is our time to market,
which currently is the fastest in the sector.
Other banks’ approval processes involve
getting authorisation from abroad, where
their HQs are located or involve lengthy local
authorisation processes because of their size
and disperse decision-making platform. With
our flexibility and fast response to our clients’
needs, by the time other banks approve a loan,
we will have not only already financed the
project, but also most likely received payments
from that loan.
Q: Your stock was one of the best performers
during 2014. To what do you attribute the
success you’ve had in the financial markets?
CR: We are always very proactive in each of
the endeavours at the group. We created an
investor relations office eight months before the
IPO took place, and our majority shareholders
were very committed to making the history and
The El Cajón Dam, Santa
María del Oro, Nayarit
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El Sinaloense Tunnel, Durango,
Mazatlán Highway is one of the
many projects financed by GFI
success of the group not only understood by
the world, but also, to stand up to the scrutiny
of institutional investors. This commitment is
something that extends from the chairman of
our group down to every single employee.
During 2014, management had 219
meetings with investors and continues to be
very disciplined, having meetings in the major
regions of the world on a regular basis. By
explaining our business model in detail and
delivering the financial results we promised
to the market, we were able to attract great
demand for the stock, which was quickly
recognised as an excellent investment vehicle to
reach the infrastructure market in Mexico.
Q: With the current oil prices and with the
slow execution of the infrastructure agenda
by the federal government of Mexico, do you
expect a weaker 2015 and 2016 than you had
originally envisioned?
CR: We do recognise that the environment has
become more challenging, not only for us but
also for the overall credit market in Mexico.
However, as I’ve mentioned before, given the
nature of our firm, the expertise we hold at our
group, and the type of projects we focus on, we
have been able to cope with these conditions
and adapt to the changing environment.
It is because of this adaptability that we
were able to surpass our guidance for last
year by growing 30% in loans despite a
lacklustre credit market. Also, the current
market conditions have given rise to an
interesting array of opportunities. To give you
an example, the federal budgetary cuts have
created liquidity deficits that have opened
financing opportunities for us in the form of
direct loans to federal entities or financing to
leasing operations that because of liquidity
needs among government institutions, have
intensified their activity in the sector.
Thus, we are constantly adapting to our
changing environment leveraging the many
financing opportunities that this same
environment is creating for us.
GLOBAL BUSINESS AWARDS
COVER STORY
About Grupo Financiero Interacciones
Grupo Financiero Interacciones is the
largest specialised financial group in
Mexico, and is focused on providing
government and infrastructure lending, risk
management and financial advisory services
to the domestic public sector.
The company ranks third in government
lending in Mexico and serves a customer
base that includes the federal government,
states, municipalities, as well as government
suppliers.
Grupo Financiero Interacciones focuses
on innovative lending alternatives that
support the development and growth of
Mexico, offering a timely and personalised
service to its clients from the very beginning
of their projects, while providing solutions
that are tailor-made to their evolving needs.
Banco Interacciones, which represents
over two-thirds of total group assets, is
complemented by its brokerage subsidiary,
Casa de Bolsa Interacciones, and insurance
unit, Aseguradora Interacciones. It employs
more than 1,000 individuals and are present
in 19 of 32 states, throughout Mexico.
Reasons to invest
Highly focused on Mexico’s attractive
government and infrastructure lending
sectors
Through its focus on government and
infrastructure lending, which makes up
approximately 85% of its loan portfolio,
Grupo Financiero Interacciones offers
investors a unique vehicle for participating
in the transformation and growth of
Mexico’s economy. Through its government
and infrastructure lending operations,
including SME banking to federal
government suppliers, Grupo Financiero
Interacciones has established a loyal
client base, combined with 15 years of
solid understanding of the subnational
infrastructure sector, and efficient,
specialised credit risk models.
One of the most efficient franchises in
Mexico’s financial system
Grupo Financiero Interacciones’ focused
business approach, lean operating structure
and non-branch operation deliver bestin-class operating efficiency and an
outstanding efficiency ratio. Among
Mexico’s financial groups, it ranks first in
operating efficiency and fourth in efficiency
ratio, with figures of 1.67% and 43.29%,
respectively, as of 2014.
High profitability and remarkable
consistency
They stand out as one of the country’s most
profitable financial groups, with an average
ROAE in excess of 19% over the past five
years. Furthermore, Grupo Financiero
Interaccciones has been consistently
profitable with a track record of more than
ten years of consecutive quarterly profits.
Low-risk, high-quality assets
and prudent capitalisation
Grupo Financiero Interacciones operates
with the highest scrutiny over asset quality.
This scrutiny branches out through the
entire financial group and is reflected in
their current NPL ratio of 0% in its existing
business lines and in the collateralisation of 93.19% of its loan portfolio with federal
resources. Additionally, Grupo Financiero
Interacciones is one of the best capitalised
financial groups in Mexico strengthening
even further its risk mitigation profile, while
at the same time, maximising returns for its
shareholder base. Solid growth track record and outlook
Over recent years, Grupo Financiero
Interaccciones has achieved mid-teen 16%
CAGRs in total loans as well as net income,
reinforcing the merits of their focused
business strategy. The company plans to
augment their future growth by increasing
their footprint beyond the 19 states that
they currently serve. Mexico’s compelling
macroeconomic fundamentals and reform
agenda, along with industry-specific
drivers, bolster their growth outlook.
As government spending increases on
infrastructure and other projects, Grupo
Financiero Interaccciones will be there
to provide the financing and facilitate the
country’s future development.
Further information
www.interacciones.com
Orange Interacciones
C:0 M:75 Y:85 K:0
The Guadalajara
Highway