Financiera Independencia Reports Total Loan Portfolio Growth

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Financiera Independencia, S.A.B. de C.V., SOFOM, E.N.R. (BMV:FINDEP), (Independencia) a Mexican microfinance lender of personalloans to lower income segment individuals, today announced resultsfor the three-month period ended June 30, 2008. Net income for 2Q08declined 28.6% year-on-year to Ps.110.2 million, and on asequential basis fell 32.5%, from Ps.163.1 million in 1Q08. Netincome for 6M08 slightly decreased 0.8% from Ps.275.7 million in6M07.
(Unless otherwise stated, all financial figures discussed in thisannouncement are unaudited, prepared in accordance with MexicanFinancial Reporting Standards (NIFs) and represent comparisonsbetween the three and six-months periods ended June 30, 2008, andthe equivalent three and six- months periods ended June 30, 2007and March 31, 2008. Results for 2Q07 are expressed in constantMexican pesos as of December 31, 2007, while 1Q08 and 2Q08 resultsare in nominal pesos. Tables state figures in millions of pesos,unless otherwise noted.)
Commenting on the results, Noel Gonzalez , Chief Executive Officer, said, "The fundamentals of our businessremain strong, although this was a challenging quarter with anumber of factors contributing to a weaker performance."
"Our clients and loan growth continues to be strong and we are veryclose to reaching our one million customers milestone. However, achange in the mix of our portfolio this quarter resulted in adecline in net interest margin."
"Making the most of our flexibility to fine-tune operations, thisquarter we introduced several measures to reduce the probability ofdefault of past due loans. Our objective: to focus on the lowincome segment, while minimizing risk and continuing to build astrong quality client base. This transition, however, had atemporary negative impact on NPL ratios as we initiated these newstandards. We also fine-tuned our credit scoring policiesincreasing the loan application rejection index by four percentagepoints during the quarter."
"We strongly believe in the growth opportunities of our markets andremain committed to providing service to a segment of thepopulation that otherwise would have no access to credit, whilemoderating risk and volatility. We continue to invest in ourbusiness, as reflected in the 12 new offices and the addition of1,165 new people to our workforce," he closed.
2Q08 CONSOLIDATED RESULTS
Financial Margin after Provision for Loan Losses
Financial margin after provision for loan losses declined by 0.6%to Ps.359.1 million for 2Q08 compared to Ps.361.4 million for 2Q07.This decrease principally reflected the following changes:
Interest Income
Interest income increased 27.6% to Ps.635.7 million for 2Q08,principally as a result of the Ps.136.8 million, or 27.5%, increasein interest on loans. The number of clients rose 37.8% during theperiod, while the average outstanding loan rose 1.9%. Interestincome growth, however, was below the 43.3% year-on-year growthreported in 1Q08. This was principally due to declines in both, thegrowth rate of the loan portfolio and in the average lending rate.
The growth rate of the total loan portfolio fell to 40.4%, from47.3% in 1Q08, driven by a slowdown in the loans to the informalsector, particularly at the CrediMama and CrediPopular productswhich carry higher interest rates. Given the short maturities ofthese loans - six months - a slowdown in the growth rate has asignificant impact on interest income.
The average lending rate(1) of the total loan portfolio declined8.5 percentage points to 67.8% from 76.3% in 2Q07, driven by:
Loans to the informal sector rose 104.7% year-on-year, increasingits share of the total loan portfolio by 9.4 percentage points to30.1% of total loans up from 20.7% in 2Q07 and 28.4% in 1Q08.However, 8.5 percentage points of the increase resulted from theongoing success of the CrediConstruye loan product which carries alower interest rate. In fact, CrediConstruye loans, a productintended to finance home improvements for the informal sector ofthe economy, reached 85,028 clients in 2Q08, up 21,126, or 33.1% ona sequential basis and 504.5% year on year. The continuedsequential growth continues to reflect the positive impact of theagreement reached in September 2007 with the Federal Governmentthrough the Sociedad Hipotecaria Federal by which Independenciabegan offering 40% subsidized construction loans to its clients.
The CredInmediato loan product, which is a revolving line of creditthat targets the formal sector of the economy, accounted for 69.9%of total loans down from 79.3% in 2Q07 and 71.6% in 1Q08. Thenumber of CredInmediato clients in 2Q08 grew by 24.5% year-on-year,while the total loan portfolio of this product rose by 23.6%, toPs. 2,735.4 million, reflecting a 0.7% decrease in the averagebalance in constant pesos.
Interest expense during 2Q08 increased by Ps.14.9 million, or46.6%, to Ps.46.9 million from Ps.32.0 million on 2Q07. Interestexpense for 2Q07 was reduced by Ps.9.1 million to compensate thecorresponding portion of the one- time break-up fee resulting fromthe replacement of the GE Capital line of credit with a revolvingcredit line with HSBC Mexico. Excluding this impact, interestexpense for 2Q08 would have increased Ps.5.8, or 14.1% in line withthe 15.5% growth in the average balance of liabilities for theperiod and the 0.71 percentage point year-on-year reduction in theaverage interest rate paid.