In Crédito Real we are very pleased with our 2016 results, where a significant progress was accomplished in the consolidation of the acquisitions we got along the last two financial years, that along with the drive and growth of our business in Mexico, allowed the achievement of historical results for the Company. Therefore, we accomplished an expansion of 35.9% in the consolidated loan portfolio, in spite of a challenging environment, characterized by economic uncertainty and volatility in the financial markets.
Another important accomplishment was the progress towards our globalization and geographical diversification, strengthening our presence mainly in Central America, through Instacredit solid platform, where we found similarities with Mexico; including a huge market underserved by the traditional financial institutions. In February, 2016, we acquired 70% of Instacredit, a company dedicated to durable goods loans granting, which offers credit services to low and middle income population, which credit requirements are not properly attended by the traditional banking. Among its product offering are the personal, car and small business loans, with a network of 69 branches in Costa Rica, Nicaragua and Panama, covering the commercial operation of over 400 promoters. Instacredit, in 2016, represented 21% of the Company’s loan origination and more than 18% of total loan portfolio.
Going further into our results, net income showed a 25% increase year-over-year, while the net interest margin moved forward in 150 pbs, reaching 22.5% with 20.2% return on equity. Our capitalization index stood at 38.8%, which keeps us as one of the best capitalized financial institutions from the Mexican financial sector and therefore, lower risk, more stability and stronger expanding horizons.
Regarding our consolidated loan portfolio, the financial year closed with a balance near to 24 thousand million pesos, growing 35.9%, where the Payroll segment continues with the highest participation of 60.7%, although decreasing versus 2015, following up our diversification strategy.
Concerning this issue, our business lines Payroll, Used Cars and Group loans, expanded to double-digit rates year-over-year, great indicator of the successful operation in our proven business model. This expansion was followed by strict procedures as for the loan granting, which kept the assets quality, as shown in our non-performing loan portfolio “best-in-class”, of only 2.2%, improving in 20 pbs, concerning 2015. The main element for this result is found in the alignment of interests between Crédito Real and its distributors, cornerstone in our business model, unique in Mexico. I am also pleased to share with you that by the end of the year, we reached a platform of over 780,000 customers, from 619,000 we had at the beginning of the year.
On the other hand, being aware of the challenges ahead of us, in Crédito Real we will focus our growth towards the most profitable business lines, such as Payroll, preserving our leadership in the retired customers segment; Autos México, through our partnership with Drive & Cash and Used Cars in the United States through Don Carro, as well as Instacredit, providing us high growing levels in stable currencies. Likewise, we will apply an expenses standardization plan to balance the pressure in the financing cost, and finally, we will pursue the definition of a financial structure that allows us to deal with the market risks, keeping a conservative profile against exchange rate risks and higher interest rates.
Through 2016, the interest rates in Mexico followed an upward trend, increasing 250 bps., nevertheless, we were able to reduce the impact in the consolidated funding cost, which stood at 9.7%, since approximately 27% of our debt is negotiated at fixed rate. It is important to highlight that the increase of 360 pbs. in the consolidated funding cost is mainly explained by the consolidation of Instacredit and a negative carry effect for the unused resources surplus of our Senior Note 2023, clearing away these effects, the increase would have been of only 100 bps. Additionally, during 2016, we made efforts to strengthen our financial condition, by carrying out the restructuring of more than 70% of our total consolidated debt, being the best achievement in liability management within Crédito Real history, which included the successful bond issuance of 625 million dollars in the international markets. This contributed to the reduction on the impact of funding rate increases in our financial margin, which also was favored by the exchange risk elimination, due to the signing of derivative financial instruments as well as the natural hedge that the operation in the US provides us.
Hence, we are optimistic expecting that 2017 will be a year of new and greater achievements, where we will seek an adequate and conservative balance, due to the uncertain beginning of the year regarding financial markets, which has been more stable as we have been moving forward into it.
Finally, I must also mention that in Crédito Real, we have the strong commitment to continue providing high quality financial solutions addressed to the population underserved by the traditional banking, distinctive element that has characterized us for more than two decades of history. Likewise, we need to strengthen our corporate governance through the several committees responsible for leading all of our administrative issues to a successful conclusion.
We are very proud of the brand we have created, which has placed us as one of the unquestionable leaders in the loan granting to underserved population segments, either in Mexico as in the different markets we operate. All of the above mentioned, derived from our strong and flexible business platform, which has been highly and successfully proved, even in times of crisis.
Finally, I would like to thank all of our employees, distributor’s network, creditors and strategic partners for their loyalty and commitment, as well as a special gratitude to our shareholders for trusting us to lead this great organization and team, which personally moves me to become better every day.
ANGEL ROMANOS BERRONDO
CRÉDITO REAL - CHIEF EXECUTIVE OFFICER