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1 Retail Banking Presentation November 16, 2007. Banorte Day Miguel Huller Director General de Consumo Slide 2 2 Contents Market Overview Retail Lending Deposits Electronic Banking Slide 3 3 Retail Lending Evolution Retail lending had a dramatic growth at a CAGR of 39 % in the last years.. and the major drivers were mortgages and credit cards growing at CAGR of 27% and 47 % respectively Retail lending portfolio in O/S Mortgage and Credit Cards O/S Source: Banxico Retail Banking Overview - 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000 20002001200220032004200520062007 Credit CardMortgage P$ Million Slide 4 4 Also, the GDP per capita has grown. and inflation and interest rate have gone down. TIIE 28 Days Average Annual vs. Inflation GDP per Capita in US$ Retail Lending Evolution 7.6% 17.0% 12.8% 8.2% 6.8% 7.2% 9.6% 7.5% 3.4% 4.4% 5.7% 4.0% 5.2% 3.3% 4.1% 8.7% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20002001200220032004200520062007E TIIE 28 Days Average AnnualInflation Retail Banking Overview Source: Banxico Slide 5 5 Retail Lending Evolution Year 2000 Year 2007 Interest RateTIIE + 8%Down to 9% fixed Term10 years15-30 years Type of Mortgage Residential Acquisition All Monthly Payment per thousand 2210 Downpayment35%5-10% Mortgage insuranceNoYes Minimum350,000170,000 Tax benefitsNoYes Comparison betwen Mortgage Loans Retail Banking Overview Slide 6 6 Retail Lending Evolution Non guaranteed loans have grown as a percentage of the GDP but they are still way below other countries Non guaranteed loans as a % of GDP 0.8% 1.0% 1.2% 1.6% 2.1% 3.0% 4.1% 4.3% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 20002001200220032004200520061T07 15.9% 14.3% 11.4% 10.8% 9.6% 8.0% 6.5% 4.5% 3.4% 3.1% 3.0% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% USA UK Sweden Germany Spain France Portugal Turkey Italy Holland Hungary Mexico (2005) Retail Banking Overview Slide 7 7 Bank Mortgages as a % of GDP Mortgage as a % of GDP Mortgages have also grown but with a lower share.. still, it is dramatically below developed countries and other LA countries Retail Lending Evolution 65% 61% 43% 29% 16% 7% 1.5% 2% 0% 10% 20% 30% 40% 50% 60% 70% UKEEUU European union FranceChileMexico (banks) Brazil Retail Banking Overview (2005) Slide 8 8 RetailEnterprises SME Corporate and Government Middle Market Entry Level Affluent Middle Market Retail Banking Overview Slide 9 9 Mortgage Car Loan Payroll / Personal Loan Credit Card ATM POS/Debit Internet Banking Telephone Banking Mobile Banking Checking accounts Saving accounts Payroll accounts Cash management 26% % Revenue/ Total GFNorte: 7% 32% % Revenue/ Total GFNorte: Retail & Commercial: (9M 2007) Retail Banking Overview Slide 10 10 Retail Lending Slide 11 11 Retail Lending Represents 37% of Banortes Total Outstandings with P$ 60 (Billions) ROA: 3.1% Banorte: (9M 2007) ROA: 1.8% Retail Lending Slide 12 12 Distribution of Outstandings by Type of Loan (9M 2007) Retail Lending Slide 13 13 Mortgage Slide 14 14 Residential acquisition Home Equity Debt consolidation Construction and renovation Land acquisition Commercial acquisition Banorte has a Mortgage solution for every customer need with great features and benefits 5% 8% 87% Mortgage Slide 15 15 Branches Distribution of sales by Channel in outstandings 2004 Mortgage Centres Branches 2007 Brokers Mortgage Slide 16 16 Mortgage Sales in P$ (Billions) Average loan in P$: 667,800 Banks average mortgage in P$: 609,000 CAGR = 27.4 % Mortgage Average loan period: 212 Months Slide 17 17 * Growth considering the sale of FOVISSSTE portfolio and Securitization. Total Year End Outstandings in P$ (Billions) CAGR = 21.9 % * * Mortgage Slide 18 18 Past Due Loan Ratio by Booking year in P$ (Millions) Year BookedOutstandings PDLR 32,081 2.4% Total Banorte before 1997115 19.2% Bancrecer1,222 8.4% Banorte after 199730,744 1.2% Mortgage Slide 19 19 Past Due Loan Ratio by property value in P$ (Millions) Property Value Outstandings PDLR Total 32,081 1.2% Less than 300,0001,168 3.6%2.0% 300,000 - 500,0003,648 11.4%1.2% 500,000 - 700,0005,853 18.2%0.9% 700,000 - 900,0003,868 12.1%1.2% More than 900,00017,543 54.7%1.3% % 100% Mortgage Slide 20 20 Past Due Loan Ratio by Bank PDLR 6.2% PDLR 3.0% HSBCScotiaBBVABanamexBanorteSantander (Source: Mexican Bank Association) Mortgage Slide 21 21 Innovation: new products and features Efficient credit adjudication process Conservative risk management policies Long term customer relationship Strong relationship with developers Present and future: Key success factors Meet our costumers needs, with asset quality in a highly competitive Mexican mortgage market Mortgage Slide 22 22 Figures in Million pesos (P$) Mexican Bankers Association Mexico City Monterrey Guadalajara Regional Strategy by market potential Present and Future Key Success Factors Market sales 07 (%) Avg. Market Share $40,895 75% 10.0% $11,16920% 21.0% $2,1745% 19.0% Market sales 07 (%) Avg. Market Share Market sales 07 (%) Avg. Market Share Strategies Expected Intensive High Growth Moderate Mantain & Moderated Growth Medium Moderated Growth Mortgage Slide 23 23 Car Loan Slide 24 24 Total Year End Outstandings in P$ (Billions) CAGR = 6.4 % Car Loan Slide 25 25 Car loan Sales in P$ (Billions) CAGR = 8.6 % Average loan in P$ 171,000 Industrys Average Loan in P$ 142,000 Car Loan Average loan period: 46 Months Slide 26 26 Car sales by segment 2007e Car Loan Slide 27 27 Car Loans as a % of new cars sold in Mxico Car Loan 200520062007e Dealer Loans58%59%58% Bank Loans31%32%35% Self financing10%8%7% Slide 28 28 Past Due Loan ratio by bank PDLR 2.0% PDLR 2.8% HSBCScotia BBVABanamex Banorte (Source: Mexican Bank Association) Car Loan Slide 29 29 Target: high value cars and enterprises Special sales force for car dealers Special offer for existing clients to trade up their cars Attach car loans to payroll accounts to leverage on asset quality Launch new products: leasing Improvement in credit adjudication process Present and future: Key success factors Car Loan Slide 30 30 Payroll & Personal Loans Slide 31 31 CAGR = 36.3 % Total Year End Outstandings in P$ (Billions) Payroll & Personal Loan Slide 32 32 Payroll and Personal Sales in P$ (Billions) Average loan in P$ 22,576 Industrys Average Loan in P$ 13,000 CAGR = 29.2 % Payroll & Personal Loan Average loan period: 23 Months Slide 33 33 % Payroll Loans / Payroll Accounts Payroll Accounts (Units) Payroll Loans (Units) Year % Loans / Accounts 20041,54520713% 20051,73626315% 20061,94730216% 2007 2,184 34116% (Thousand Units) Estimated growth of 358,000 net new payroll accounts for 2008 Payroll & Personal Loan Slide 34 34 PDLR 2.0% PDLR 2.3% ScotiaBBVABanamexBanorteSantanderHSBC Past Due Loan ratio by bank (Source: Mexican Bank Association) Payroll & Personal Loan Slide 35 35 Migrate customer mindset from fixed term loan to line of credit Diversify credit disbursement channels from branches ATM and internet banking New products and offers for first timers. Channel diversification : sales force on site clients Cross selling / pre-authorized credits Existing Clients New Clients Present And Future: Key Success Factors Payroll & Personal Loan Slide 36 36 Credit Card Slide 37 37 Cards Sold in Thousand CAGR = 56.4 % Credit Card Slide 38 38 Cards Portfolio in Thousand CAGR = 57.1 % Credit Card Slide 39 39 Sales Channel Diversification TelemarketingCrossin sellingBalance Tranfers Program Suplementary Cards Branches Credit Card Slide 40 40 Purchases & Cash Advances in P$ (Billions) Market Share: 5.0 % as of Sep 07 from 4.6 % Sep 06 CAGR = 26% Credit Card Slide 41 41 4 7 10 13 CAGR = 48.1 % Total Year End Outstandings in P$ (Billions) Credit Card Slide 42 42 Product Mix Platinum Infinite Entry Level Gold Standard Mujer Classic Standard Instant Issuing SME Corporate RetailEnterprises New Products Credit Limit in P$ $ 3,000 $ 6,000 $ 10,000 $ 250,000 $ 200,000 $ 40,000 Credit Limit in P$ Credit Card Slide 43 43 Past Due Loan Ratio by Bank PDLR 2.8% PDLR 6.3% HSBCScotiaBBVABanamexBanorteSantander (Source: Mexican Bank Association) 60+ 90+ Credit Card Slide 44 44 Credit Cards in Mxico (Source: Mexican Credit Bureau) 35.9 millions cards (sept 07) 2.46 cards per client Past Due Loan Ratio (90+) Credit Card Slide 45 45 Sales channel diversification & consolidation Portfolio management Product development / Co-branded cards Balance transfers / Convenience checks Credit Risk Management / Risk based pricing Technological & operational efficiencies Present and Future : Key Success Factors Credit Card Slide 46 46 Cards Market Market size (%) Avg. Market Share 21.683% 3.5% 3.513% 11.1% 0.9 4% 5.6% Market size (%) Avg. Market Share Market size (%) Avg. Market Share Strategies Expected Intensive High Growth Moderate Mantain & Moderated Growth Medium Moderated Growth Credit Card Present and Future : Key Success Factors Mexico City Monterrey Guadalajara Slide 47 47 Deposits Slide 48 48 Total Number of Local Currency Account (millions) CAGR = 25.4% Deposits Slide 49 49 Total Year End Balances in P$ (Billions) CAGR = 11.9 % Deposits Slide 50 50 Average Funding Cost (As a % of CETES 28) (Source: Mexican Bank Association) Deposits Slide 51 51 $124 37% 31% 32% Deposits Total Year End Balances in P$ (Billions) Slide 52 52 YoY Sep 06 Sep 07 Banortes Market Share CAGR = 4.6 % Deposits Growth Deposits Slide 53 53 Suma Ahorro Medium Enterprises Corporate / Government Small Business Packaged Solution Tailor Made Solutions Payroll POS Checking E Banking SME Credit Card Checking Cash Management Payroll Collections Services Corporate Credit Card Merchant Acquiring Services Increase Share of Wallet Enterprises Strategies Present and Future Key Success Factors Deposits Slide 54 54 Suma Ahorro Entry Level Account Products according to customer needs Savings Checking Private Banking Payroll Cross Sell E-Banking Investments Loans Insurance Credit cards Mortgages Increase Share of Wallet Bancarization Retail Strategies Present and Future Key Success Factors Deposits Slide 55 55 Figures P$ Millions Strategies Expected Intensive High Growth Moderate Mantain & Moderated Growth Medium Moderated Growth Market size (%) Avg. Market Share $945,00075% 8.0% $260,00020% 24.0% $62,0005% 11.0% Market size (%) Avg. Market Share Market size (%) Avg. Market Share Mexico City Monterrey Guadalajara Regional Strategy by market potential Present and Future Key Success Factors Deposits Slide 56 56 Electronic Banking Self Service Banking Slide 57 57 Self-Service Banking Customer needs, retail & commercial, demand 24/7, multi-channel, secure and real time service. ATM POS Online Banking Telephone Banking Mobile Banking E-Banking Client Slide 58 58 Conclusions Slide 59 59 The Challenges Regulation New players Sales channel diversification Retail Banking Slide 60 60 The Strategy Strong focus on execution and results Innovation maximizing technology Large customer base Well developed branch network and infrastructure Risk management Strong brand positioning LEVERAGE ON OUR STRENGHTS MOVING FASTER THAN OUR COMPETITORS Retail Banking Slide 61 61 From product focus to customer development Costumer service / Self service banking Leverage branch network Think outside the branch Product bundling Segments and niche focus New tools: Credit adjudication and behavior score Risk based pricing Retail Banking Customer Sales Growth Innovation Asset Quality The Future Slide 62 62 Retail Banking Bank Perspective Checking Savings Mortgage Credit Customer Perspective (Needs) Home Investments Car Transactions Retirement Plan Senior Borrower Youth Student I Need a . I am a . Home Buyer Solution Bank and Customer Perspective (Solutions) Retirement Solutions Student Solutions Credit Lines Credit Lines Savings Home Insurance Home Insurance Mortgage Brokerage Retirement Home Mortgage Retirement Home Mortgage Annuities Mutual Funds Mutual Funds Credit Card Credit Card Student Loans Student Loans High Interest Savings High Interest Savings Checking Slide 63 63 Leverage branch network Think outside the branch New tools: Credit adjudication and behavior score Risk based pricing Retail Banking Customer Sales Growth Innovation Asset Quality From product focus to customer development Costumer service / Self service banking Product bundling Segments and niche focus The Future Slide 64 64 Analytics Engine Sound Risk Policies and Strategies Credit Risk Management Originations Performance Management Collections Enabling Technology Platform People Retail Banking Slide 65 65 Leverage branch network Think outside the branch New tools: Credit adjudication and behavior score Risk based pricing Retail Banking Customer Sales Growth Innovation Asset Quality From product focus to customer development Costumer service / Self service banking Product bundling Segments and niche focus The Future Slide 66 66 Certain statements in this document are forward-looking statement. 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. Slide 67 67