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Nacional Financiera S.N.C.: Investor Presentation March 2017

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Nacional Financiera S.N.C.: Investor Presentation March 2017

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Nacional Financiera S.N.C.: Investor Presentation March 2017

  1. 1. Nacional Financiera S.N.C. Investor Presentation March 2017
  2. 2. Disclaimer This presentation (the “Presentation”) has been prepared by Nacional Financiera, Sociedad Nacional de Crédito, Institución de Banca de Desarrollo (“Nafin”) and its affiliates exclusively for the benefit and internal use of the recipient (the “Recipient”) to whom it is addressed. The Recipient is not permitted to reproduce in whole or in part the information provided in this Presentation (the “Information”) or to disclose the Information to any third party without the prior written consent of Nafin. Nafin and its affiliates, officers, directors, employees, professional advisors and agents do not accept responsibility or liability for this Presentation or its contents (except to the extent that such liability cannot be excluded by law). Nothing in this Presentation should be construed as either an offer to sell or a solicitation of an offer to buy or sell any securities of Nafin or any of its affiliates in any jurisdiction. This Presentation is (i) for discussion purposes only; and (ii) speaks only as of the date it is given, reflecting prevailing market conditions and, as a result, the views expressed are subject to change based upon a number of factors, including market conditions and Nafin’s business and prospects. The Information contained in these materials has not been independently verified. No representation or warranty express or implied is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or opinions contained herein. It is not the intention to provide, and you may not rely on these materials as providing, a complete or comprehensive analysis of Nafin’s financial position, operations or prospects. The Information contained in this Presentation has not been subject to any independent audit or review and may contain “forward-looking” statements regarding Nafin’s business outlook and anticipated financial and operating results, as well as estimates and projections that relate to future events, which are, by their nature, subject to significant risks and uncertainties. All statements other than statements of historical fact contained in this Presentation including, without limitation, those regarding Nafin’s future financial position and results of operations, strategy, plans, objectives, goals and targets, future developments in the markets in which Nafin operates or is seeking to operate, and any statements preceded by, followed by or that include the words “believe,” “expect,” “aim,” “intend,” “will,” “may,” “project,” “estimate,” “anticipate,” “predict,” “seek,” “should” or similar words or expressions, are forward-looking statements. The future events referred to in these forward-looking statements involve known and unknown risks, uncertainties, contingencies and other factors, many of which are beyond Nafin’s control, that may cause actual results, performance or events to differ materially from those expressed or implied in these statements. These forward-looking statements are based on numerous assumptions regarding Nafin’s present and future business strategies and the environment in which Nafin will operate in the future and are not a guarantee of future performance. Such forward-looking statements are subject to change and speak only as at the date on which they are made. None of Nafin or any of its affiliates, officers, directors, employees and agents undertakes any duty or obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this Presentation, whether as a result of new information, future events or otherwise, except to the extent required by law. In addition, none of Nafin or any of its affiliates, officers, directors, employees, professional advisors and agents make any representation, warranty or prediction that the results anticipated by such forward-looking statements will be achieved, and such forward-looking statements represent, in each case, only one of many possible scenarios and should not be viewed as the most likely or standard scenario. Although Nafin believes that the estimates and projections in these forward-looking statements are reasonable, they may prove materially incorrect and actual results may materially differ. As a result, Recipients should not rely on these forward-looking statements. This Presentation should not be construed as financial, legal, tax, accounting, investment or other advice or a recommendation with respect to any investment. Under no circumstances is this Presentation or the Information contained herein to be construed as a prospectus, offering memorandum or advertisement, and neither any part of this Presentation nor any Information or statement contained herein shall form the basis of or be relied upon in connection with any contract or commitment whatsoever. Any decision to purchase securities in any offering of securities of Nafin or its affiliates should be made solely on the basis of information contained in any offering document which may be published or distributed in connection with any such offering of securities. More information on the risk factors that could affect Nafin’s results are contained in the offering memorandum relating to the notes. By receiving or participating in this Presentation, the Recipient acknowledges and agrees to be bound by the foregoing qualifications and limitations. Presentation of Financial Information of Nafin The financial information included in this Presentation has been derived from Nafin’s financial statements as of December 30, 2016 (subject to Nafin’s board approval) and for as of the years ended December 31, 2015, 2014 and 2013. These financial statements were prepared in accordance with the accounting principles and regulations prescribed by the CNBV for credit institutions, as amended from time to time.
  3. 3. Table of Contents 1 2 3 NAFIN at a Glance Introduction Business Overview Section 1 NAFIN’s Credit Highlights Section 2 Mexico Outlook and Challenges Section 3
  4. 4. 4 Source: NAFIN, data subject to Nafin's board approval. Note: Financial data converted to US$ using the FX rate of MXN20.6194 per US$1, the exchange rate published by Banco de Mexico on December 31, 2016. Total Loan portfolio excludes loan guarantees. (1) Calculated as Income before non-holding company equity divided by average total assets. (2) Calculated as profit attributable to NAFIN divided by average shareholders equity. (3) Regulatory Capital is calculated in accordance with guidelines of the Basel II Accord, as adopted by the CNBV. As of January 1, 2013, minimum regulatory capital for all Mexican banks, including us, expressed as a percentage of risk-weighted assets, was set at 8%, this is in addition to a 2.5% supplemental capital requirement. See "Regulation and Supervision - Regulation and Supervision in Mexico - Capitalization“ in the Offering Memorandum. (4) Calculated as total non-performing loans divided by total loans. Includes guarantees granted and credit commitments. (5) Calculated as allowance for loan losses divided by non-performing loans. Includes guarantees granted and credit commitments. (6) Non-Bank Financial Intermediaries include credit unions, SOFOMes, promotion entities, SOFIPOs and sureties providers. • NAFIN is a development bank established in 1934 and is wholly-owned by the Mexican government • NAFIN’s principal goal is to provide access to affordable financing to micro, small and medium-sized enterprises (“MSMEs”) operating throughout Mexico, a historically under-banked sector of the economy – NAFIN is key to promoting the Mexican government’s policies for expanding economic and social development in Mexico with the primary objective of generating jobs and regional growth by strengthening and modernizing MSMEs • NAFIN also provides financing for infrastructure and power generation • Under NAFIN’s organic law, the Mexican government shall be responsible, at all times, for transactions entered by NAFIN with (i) Mexican individuals and companies; and (ii) non-Mexican private, governmental and intergovernmental institutions Critical Role in Financing MSMEs and Promoting Mexico’s Economic and Social Development Financial Highlights Total Private Sector Loans and Loan Guarantees (MXNbn) First - Tier Loans • Loans directly to final borrowers • Loans made mainly to borrowers involved in developing specific projects that also result in job creation and support MSMEs • Includes Sustainable Projects Second - Tier Loans • Credit lines made available to intermediary financial institutions (Mexican commercial banks and non-bank lenders(6)) to promote MSMEs activity • Complements retail banks, not competes with them • 176 Financial Intermediaries (75% Non-Bank(6)) Loan Guarantees • Provided for loans to MSMEs originated by third-party commercial lenders • Usually guarantees 50% of the loans • NAFIN earns a fee on these guarantees which are almost entirely covered by a trust principally funded by the Ministry of Finance and the Ministry of Economy NAFIN at a Glance March 2017 US$mm 2013 A 2014 A 2015 A 2016 A 2016 A Interest Income $19,530 $15,157 $14,416 $21,187 $1,028 Net Income 1,747 1,686 1,330 1,350 65 2013 A 2014 A 2015 A 2016 A 2016 A Total Loan Portfolio $120,602 $150,299 $171,702 $214,313 $10,394 Total assets 352,037 389,762 384,710 503,541 24,421 Total liabilities 329,464 365,666 359,324 475,432 23,058 Stockholders Equity 22,573 24,096 25,386 28,109 1,363 Selected Ratios 2013 A 2014 A 2015 A 2016 A ROAA(1) 0.52% 0.45% 0.37% 0.28% ROAE(2) 7.72% 6.74% 4.87% 5.05% Capital ratio(3) 15.30% 14.62% 13.57% 13.26% NPL ratio(4) 1.48% 1.29% 1.13% 1.04% NPL coverage ratio(5) 202% 209% 248% 259%
  5. 5. Business Overview
  6. 6. Loan Guarantees (46% of total loan portfolio)(1) Second - Tier Loans (40% of total loan portfolio)(1) First - Tier Loans (14% of total loan portfolio)(1) Intermediary Financial Institutions (Commercial banks and non-bank lenders) Third Party Commercial Lenders Final Borrower Final Borrower Final Borrower 6 Business Overview NAFIN’s Credit Risk: Final BorrowerNAFIN’s Credit Risk: Financial Intermediaries NAFIN’s Credit Risk: 50% up to 100% Guarantee on MSMEs Loans (losses covered almost entirely by funds principally from the Ministry of Economy and the Ministry of Finance) • In second-tier loan and guarantee programs, the intermediary financial institutions serve as agents by extending loans to ultimate borrowers, enabling Nafin to increase the size of its loan portfolio without significant additional operating expenditure • Each intermediary financial institution originates and underwrites loans using Nafin’s available credit lines – Intermediaries bear ultimate borrowers’ credit risk, thus Nafin risks, is related to the intermediary financial institution and not to the ultimate borrower Nafin’s Business Model Source: NAFIN. (1) As of December 31, 2016 (subject to Nafin's board approval) March 2017 Core Business
  7. 7. 44% 25% 24% 7% Private Financial Intermediaries Commercial Banks Private Sector Entities Other(3) 40% 28% 32% Industry Commerce Service Source: NAFIN as of December 31, 2016 (subject to Nafin's board approval) (1) Includes loan guarantees. (2) Includes first and second-tier loans, excluding loan guarantees. (3) Other include Mexican Government, International Financial Organizations and Development Banks. MSME Development and Financing Clients Main Products & Services Channel • Second-tier • Commercial Banks • Non-bank financial intermediaries • Credit • Electronic Factoring • Loan Guarantees • Managerial training and technical assistance • MSMEs By Economic Sector(1) Description • Provides loans, guarantees, managerial training and technical assistance to MSMEs • Represents ~80% of the total Loan Portfolio By Type of Borrower(2) MXN366bn MXN 214bn Business Divisions Loan Portfolio Breakdown 7 Business Model Investment and Corporate Banking Fiduciary Services Treasury and Financial Markets Financial Agent • First-tier • “Fund of Funds”, a fund created to invest in other funds • Direct • Financial intermediaries • Treasury • Money market desk • FX desk • Derivatives desk • Investment funds • Securities guarantees • Sustainable Project Financing(4) • Corporate Finance • Venture Capital • Managerial training and technical assistance • Institutional and corporate investors • Public and private entities • Fiduciary Services • Direct • Direct • Private entities • Public and private strategic projects • Manages NAFIN’s funding and treasury • Securities, currency and derivatives markets • Intermediary of the Mexican Government in the negotiation, execution and management of loans from several multilateral financial entities • Supports the development of government - owned and private sector projects • Supports the development of strategic and sustainable projects • Public entities • Intermediation in loans from multilateral organizations March 2017 Core Business
  8. 8. Sovereign Guarantee • All NAFIN debt is considered public debt of Mexico under the Federal Law of Public Debt: The Mexican government shall be responsible, at all times, for transactions entered into by us with (i) Mexican individuals and companies, and (ii) non-Mexican private, governmental and intergovernmental institutions 8 UMS Credit Ratings BBB+ Negative A3 Negative BBB+ Negative Rating OutlookAgency 99.9% owned by the Mexican Government(1) Source: NAFIN’s Organic Law. (1) The Mexican Government owns 99.9% of NAFIN’s shares or CAPs (Contribution of Interest Certificates) This support from the Mexican government allows NAFIN to access diverse sources of funding to develop its business objectives and continue expanding its portfolio in line with the government’s mandate March 2017
  9. 9. 2016 Highlights 9 Key Metrics Capital Markets • Gross Loan Portfolio – Loan portfolio (excluding loan guarantees) grew 23% driven primarily by Mexican government policy of expanding the participation of development banks in promoting economic growth – Nafin, in terms of loan portfolio, remains the third largest bank in Mexico and the largest development bank in Mexico. • Improved Financials and Ratios – NPL Ratio decreased from 1.13% to 1.04% – NPL Coverage Ratio is 79% higher than the banking system • Capitalization Rate – Remains +5.26% higher than the regulatory requirement • Portfolio composition in accordance to Nafin’s core business – 46% Loan guarantees, 14% First Tier Loans and 40% Second Tier Loans – 32% Service, 40% Industry and 28% Commerce #1 2016 Highlights • We continued to broaden and diversify our funding sources by achieving two new milestones: – First Euroclearable Cebures for NAFIN in April 2016 – Issued the first ever MXN-denominated Green Bond in September 2016
  10. 10. Essential Participant in the Mexican Government’s Economic and Social Development Strategy Key Player to Boost the MSME Loan Segment with a Strong Potential for Future Growth Highly Diversified Portfolio with a Low Non-Performing Loans Ratio Strong Risk Management Processes and Policies Solid Financial Performance Strong Corporate Governance with an Experienced BoD and Management Team Robust Financial System 10 1 3 4 5 2 6 7 NAFIN’s Credit Highlights March 2017
  11. 11. 1 11 NAFIN’s Key ObjectivesMexican Financial System Main Authorities Central Bank of Mexico Ministry of Finance Mexican Banking and Securities Commission Financial Intermediaries Improve MSMEs growth and productivity by increasing financing and improving loan conditions 1 Support the development of long-term projects in priority and high impact sectors, in coordination with other development banks 2 Promote the development of Mexico through the offering of differentiated products, either directly or through a network of intermediaries 3 Contribute to the development of the Mexican financial markets through innovative instruments and mechanisms as sources of financing for MSMEs 4 Maximize the impact on economic development while ensuring our long-term sustainability 5 Maintain a flexible and innovative support and management structure 6 Develop a result-oriented management team to improve Mexico’s economic development 7 Export credit agency that finances Mexican companies Promote and finance infrastructure projects and public services Promote the development of the local industrial SMEs Provide banking services to the members of the Mexican Army Promote the development of Mexico’s credit and savings sector DevelopmentBanks(2) Promote the housing market by financing affordable houses ($9,091)($17,184) ($9,976)(1) ($1,733) ($96)($2,760) (Gross Loan Portfolio as of November 2016 in US$mm excluding Loan Guarantees) #2 Essential Participant in the Mexican Government’s Economic and Social Development Strategy Source: CNBV and NAFIN’s website. (1) Excludes loans guarantees (2) Financial data converted to US$ using the FX rate of MXN20.5155 per US$1 March 2017
  12. 12. 1934 • NAFIN was founded with the purpose of promoting Capital Markets in Mexico Dec 1940 • NAFIN’s New Organic Law is published, making it a national credit institution 2009 • The Sustainable Projects Unit was created to participate in the financing of environmentally friendly projects 1 12 Source: CNBV and Company website. Data as of November 30, 2016 (1) Includes only commercial loans (Corporate, financial institutions and government). For NAFIN, it also includes loan guarantees. 1945 • Begins promoting the Mexican industrialization to replace imports 1980 - 1988 • NAFIN was focused on providing support to companies in distress that were considered essential for Mexico 1937 • First Debt Capital Markets issuance by NAFIN 20121940 20122009 1986 • NAFIN’s New Organic Law was published, making it a development bank 2010 • NAFIN becomes the 1st Mexican Bank to provide financing to a wind project in Mexico 20121986 NAFIN is a Key Player in Mexico’s Financial System Commercial Banks Gross Loan Portfolio (1) (MXNbn) Development Banks Gross Loan Portfolio (1) (MXNbn) #1 #3 YoY Change 13.6% 16.3% 24.5% 9.6% 25.8% 11.2%16% 18.5%10.2% 1940 • NAFIN’s first Debt Capital Markets issuance 20121945 10.2% 4.3% 19%30.3% -15.9%24.5% YoY Change 2013 • 2013-2018 National Development Plan of the Mexican government is published 20122013 Essential Participant in the Mexican Government’s Economic and Social Development Strategy March 2017 20122015 2015 • The return to international markets after 18 years with the first USD Green Bond by a Mexican issuer 2016 • First MXN Green Bond in the history of the Mexican market20122016
  13. 13. 111.20% 67.90% 47.10% 36.80% 32.70% 0% 20% 40% 60% 80% 100% 120% Chile Brazil Colombia Peru Mexico 2 13 Source: Mexico Banks and Securities Regulator (CNBV), ProMexico and World Bank. …Coupled with Stable ProfitabilityRobust Asset Quality and Adequate Capitalization… … But Still Remains as an Underpenetrated MarketStrong Loans Market Growth in Mexico… 15.7% 16.0% 15.5% 15.8% 14.7% Capital Ratio Banking System (MXNbn) (2015 Loans to Private Sector as % GDP) Robust Financial System March 2017 MSMEs play a key role in the Mexican Economy: 99% (total number of incorporated firms), 72% (Mexican workforce) and 52% (Mexico’s GDP)
  14. 14. 3 14 Data as of September 30, 2016 Source: Banco de Mexico, NAFIN’s Filings and annual report , Americas society, ProMexico, IFC, Global alliance od SMEs (“GASME”) and Bloomberg. (1) Calculated using NAFIN’s estimates of proportion of Total Loans to the Private Sector to Loans to Companies (i.e. Large Corporations and MSMEs). ( Commercial and Development Banks Loans to MSMEs (1) NAFIN sponsors over 500,000 MSMEs (MXNbn) MSMEs’ Contribution to GDP MSMEs Production as % of GDP Key Player to Boost the MSME Loan Segment with a Strong Potential for Future Growth March 2017
  15. 15. 44% 25% 24% 7% Private Financial Intermediaries Commercial Banks Private Sector Entities Other(3) 44% 39% 17% Loan Guarantees Second-Tier Loans First-Tier Loans 40% 28% 32% Industry Commerce Service 4 15 Source: NAFIN’s Management and Financial Statements as of December 31, 2016 (subject to Nafin's board approval) (1) Includes loans guarantees. (2) Includes first and second-tier loans, excludes loan guarantees and memorandum (3) Includes first and second-tier loans, excludes loan guarantees. (4) Calculated as allowance for loan losses divided by non-performing loans. Includes guarantees granted and credit commitments. (5) Calculated as total non-performing loans divided by total loans. Includes guarantees granted and credit commitments. Highly Diversified Loan Portfolio Portfolio by Risk Rating(2) and Currency(3) Loan Portfolio by Tenor (%)(3) Low Default Incidence By Economic Sector(1) By Type of Borrower(2) MXN366bn Average Life of 3.1 years Highly Diversified Portfolio with a Low Non-Performing Loans Ratio March 2017 NAFIN has a highly diversified loan portfolio where second-tier represents 40% of its total loan portfolio (including loan guarantees) MXN214bn MXN214bn By Type of Loan MXN214bn MXN366bn
  16. 16. 5 16 Source: Mexico Banks and Securities Regulator (CNBV). (1) Total Funding Sources correspond to Total Indebtedness as of December 31, 2016 (2) Regulatory Capital is calculated in accordance with guidelines of the Basel II Accord, as adopted by the CNBV. As of January 1, 2013, our minimum regulatory capital for all Mexican banks, including us, expressed as a percentage of risk-weighted assets, was set at 8%, this is in addition to a 2.5% supplemental capital requirement. See "Regulation and Supervision - Regulation and Supervision in Mexico - Capitalization". Capitalization Levels Regulatory Requirement CNBV’s Early Alert Limit (MXNbn) 8.0% 10.5% (2) MXN275bn MXN275bn Strong Risk Management Processes and Policies March 2017 Strong Funding Sources Across the WorldFunding Sources by Currency and Type(1) 1994 2012 2014 2015 2016 Established its Certificates of Deposit (CD) Program through its London Branch (USD 500 million) NAFIN issued a 5-year tenor CD, the first long term issue since 1997. NAFIN issued MXN 17,000 million and the CD Program was rated BBB+ by Standard and Poor's The return to international markets after 18 years, reaching in the CDs Program US$1,963 million (highest) NAFIN issued the first MXN-denominated Green Bond in the history of the Mexican market achieving an amount of MXN 2,000 million
  17. 17. • NAFIN established its Certificates of Deposit (CD) Program through its London Branch for an amount of up to USD 500 million. • On October 2013, the CD Program was increased to an amount of up to USD 2,000 million • NAFIN issued a 5-year tenor CD, the first long term issue since 1997. • The CD Program was rated BBB+ by Standard and Poor's • NAFIN issued 2 CDs with a tenor of 2 years, to continue with its long term financing goals. • In June 2015, the Program reached US$1,963 million, the highest outstanding amount issued by NAFIN in this type of transaction since it was established 5 17 Strong Risk Management Processes and Policies CDs Program Features  The most important source to raise funds in foreign currencies is the CD Programme managed by our London Branch.  The issuance of CDs is registered at the Mexican Ministry of Finance as external indebtedness.  The rates quoted are not subject to tax retention or deduction. 1994 2013 2014 2015 Issuer NAFIN, through its London branch Paying Agent HSBC Bank Plc Amount Up to USD 2,000mm Instrument Certificates of Deposit (CDs) Issue Type To be determined on placement Term Between 7 days and 5 years Currency USD and any other currency freely convertible to USD Coupon Fixed, variable or zero Governing Law English Law • NAFIN issued 3 more CDs with a tenor of 5 years consolidating its funding strategy. • CDs became available for "Repos" in Mexico2016
  18. 18. 6 18 Source: Company filings as of December 31, 2016 (subject to Nafin's board approval) (1) Calculated as total non-performing loans divided by total loans. Includes guarantees granted and credit commitments. (2) Calculated as allowance for loan losses divided by non-performing loans. Includes guarantees granted and credit commitments. (3) Calculated as administration and promotional expenses divided by the average total assets (4) Calculated as profit attributable to NAFIN divided by average stockholder’s equity. Total Net Loan Portfolio Growth NPL Ratio(1) and NPL Coverage Ratio(2) Efficiency Ratio(3) Net Income and ROAE(4) (MXNbn) (MXNbn) Solid Financial Performance March 2017
  19. 19. 6 19 Source: Company Financial Statements as of December 31, 2016 (subject to Nafin's board approval) (1) Calculated as Net Interest Income adjusted for credit risk, divided by total average interest-earning assets. (2) Calculated as Income before non-holding company equity divided by average total assets (the sum of total assets at the end of the current period and total assets at the end of the previous period, divided by two). (3) Calculated as allowances for loan losses divided by the total loans at the end of the period/year. (4) Regulatory Capital is calculated in accordance with guidelines of the Basel II Accord, as adopted by the CNBV. As of January 1, 2013, our minimum regulatory capital for all Mexican banks, including us, expressed as a percentage of risk-weighted assets, was set at 8%, this is in addition to a 2.5% supplemental capital requirement. See "Regulation and Supervision - Regulation and Supervision in Mexico - Capitalization". Financial Margin and Net Interest Margin %(1) ROAA(2) Allowance for Loan Losses as a % of Total Loans(3) Capital Ratio(4) (MXNbn) (MXNbn) (MXNbn) CNBV’s Early Alert Limit: 10.5% Regulatory Requirement: 8.0% Solid Financial Performance (Cont’d) March 2017
  20. 20. Administration and Finance Federico Ballí (Previous senior positions held in Mexico’s Institute for Social Security and Social Services of Government Workers (ISSSTE), Banobras and Fonatur after an extensive career in the Mexican financial industry (commercial and development banking)) Development Financing Catalina Bonnefoi (Prior joining NAFIN, held positions of general director of business promotion at National Financiera of Agricultural Development, Rural, Forestry and Fisheries and in Secretariat of Finance and Public Credit) ) Corporate Banking Raúl Solis (Held senior positions at Operadora Promotora de Fondos de Capital MexCapital, Grupo Financiero Interacciones, Banco Internacional and at Valores Finamex, all in financial engineering and M&A) Credit Pedro Argüelles (Has held his current position since 2001, previous senior positions held at BBVA-Bancomer, always in credit and risk management)) Legal and Fiduciary Operations Luis Dantón Martínez (Held positions as legal director at Walmart, Citigroup and Banamex, and as attorney at the law firm Franck, Galicia, Duclaud & Robles) Treasury and Markets Pedro Guerra (Held positions as corporate director of institutional relations and executive director of trusts and investment funds at Management Service and Disposal of Personal Property; he also participated in the National Water Commission, similarly, he served as director general at Mining Development Trust) Regional Promotion & Institutional Relations José Elías Sahab (Held positions as commercial director at BNY Mellon, as head of the financial legal department at PEMEX, and as chief of staff at the Ministry of Public Administration (Secretaría de la Función Pública )) Internal Control Entity Luis Bartolini (Served as member of the BoD of several companies, including CINTRA; and as secretary of the BoD of several institutions, including the National Association of Manufacturers of Household Appliances. Also founder and president of the Asociación Mexicana de Abogados Lasallistas) Entrepreneural Banking Tonatiuh Salinas (Held positions as minister of sustainable development, ministry of labor for the government of the state of Querétaro (Mexico), director of several Mexican private and government-owned entities and programs, including NAFIN and COPARMEX. He has also been in charge of several entrepreneurial programs) Technical Coordination Adriana Covarrubias (Held positions as general manager, adviser, technical coordinator and private secretary at the Mexican Institute of Social Security (IMSS), the Mexican Tax Administration Service (SAT), the Federal Treasury and the Ministry of Finance (SHCP)) CEO Jacques Rogozinski 7 20 Pedro Joaquín Coldwell Minister of Energy TopQualityManagement Selected Members of Board of Directors Strong Corporate Governance with an Experienced BoD and Management Team Source: Company website. March 2017 Carlos García Moreno América Móvil Salvador Martínez Evercore Partners Independent Government (Has held his position since January 2013, previously held senior positions in the Interamerican Development Bank (IDB), as well as in Banobras and Fonatur) Jose Antonio Meade Minister of Finance
  21. 21. MEXICO OUTLOOK AND CHALLENGES
  22. 22. Mexican Economy: Tailwinds to Turn Into Headwinds Mexico has faced numerous headwinds over the last two years… …But we expect some of these to turn into tailwinds. Reduction in oil prices despite recent rebound Subdued global growth Volatility associated with monetary policy in the U.S. Historically Low consumer confidence Weakened local currency Geopolitical uncertainty post U.S. elections Oil sector expected to stop being a drag on GDP Structural reforms will continue to boost investment Demographics imply Mexico will be a large and growing market Fundamentals of US-Mexico relation are strong Cons. Confidence and household spending relation not particularly reliable Weaker peso would play a key role in alleviating balance of payment 22 Although Mexico has been enduring several headwinds, the Government is properly addressing its challenges… …by focusing on the benefits of the relationship with its trading partners all across the globe while maintaining solid fundamentals March 2017
  23. 23. U.S.-Mexico Relationship 23 Nearly 1,000,000 people and 300,000 vehicles legally cross the border daily. More than $1 billion worth of goods pass through the 42 border crossings every day. Mexico is the 3rd most important supplier to the US and its 2nd most important consumer. Mexico is the 1st or 2nd market for 29 out of 50 U.S. states. Mexico and the US maintain a highly integrated production chain. Mexico has more FDI into the US than any other emerging market. Approximately 6 million jobs in the US depend directly on bilateral trade with Mexico. Mexico is the top destination for US travelers. Source: United Mexican States, Nafin (1) As of December, 2017 Key Takeaways Mexico is one of the U.S. most important supply chain partner and 2nd largest export market: a “trade war” would mean that U.S. taxpayers could lose by paying more for Mexican products, U.S. manufacturers lose due to the increase in their supply chain costs and U.S. exporters lose If Mexico retaliates. U.S. president currently being checked and balanced on several topics.March 2017
  24. 24. Structural ReformsFinancial SystemMonetary PolicyFiscal Policy • Fiscal consolidation program. • Robust Fiscal Program for 2017. • Prudent and efficient debt management. • Pemex business plan. 24 1 • Inflation has converged towards the 3% target. January hike (to 4.7%) largely due to the result of hikes in regulated fuel prices. • Inflation expectations anchored around the target. • FX reserves and flexible credit line. • Banks’ adequate levels of capital. • Implementation of the structural reforms. • Framework for better law enforcement and increased transparency. 2 3 4 An appropriate economic policy mix has contributed to Mexico’s economic resilience… March 2017
  25. 25. 25 -0.4 -0.9 -0.5 -0.4 -0.1 -0.8 -1.8 -6.0 -6.2 -9.1 -7.4 -5.4 -3.7 -4.6 -9.8 1.1 2.0 1.7 1.3 2.5 2.0 2.6 3.3 3.2 3.1 3.4 2.9 3.0 3.0 2.8 1.0 1.7 1.6 1.1 2.3 1.8 2.3 2.7 2.6 2.3 2.7 2.4 2.6 2.5 2.0 -15 -13 -11 -9 -7 -5 -3 -1 1 3 5 I2013 II2013 III2013 IV2013 I2014 II2014 III2014 IV2014 I2015 II2015 III2015 IV2015 I2016 II2016 III2016 Oil GDP * Non Oil GDP Total GDP Excluding the oil sector, Mexico has grown at an average rate of over 3% since 2014. */ Oil represents approximately 6% of GDP. Source: INEGI. …Despite an unfavorable external environment, Mexico’s growth has been resilient... ... Oil and Non-Oil GDP (YoY Growth)Update 4Q when available March 2017
  26. 26. 26*/ Insured workers in the National Social Security (IMSS). Source: CNBV, IMSS, INEGI and Banxico. …And Economic Growth Has Been Mainly Driven by the Domestic Market... Formal Employment and Private Consumption (Annual Growth %, 3m mov. Avg) 4.1 3.3 0 1 2 3 4 5 6 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Formal Employment Private Consumption -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% Jan-09 Aug-09 Mar-10 Oct-10 May-11 Dec-11 Jul-12 Feb-13 Sep-13 Apr-14 Nov-14 Jun-15 Jan-16 Aug-16 Total Exports Manufacturing Exports Exports (Annual Growth %, 3m mov. Avg) March 2017
  27. 27. 27 …Meanwhile Mexico is Successfully Addressing its Important Challenges by: Macro-Policy Reforms Rule of Law International Trade Maintaining discipline and consistency on macro policy Thorough implementation of the structural reforms Further efforts to ensure the rule of law Focus on U.S.-Mexico and other international trade relationships, highlighting advantages of trade integration 1 2 3 4 • NAFTA embedded under WTO • Large vested interests on trade relationships March 2017

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