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7th Latin American Banking Conference Salomon Smith Barney

7th Latin American Banking Conference Salomon Smith Barney. New York March 08, 2001. Contents. I. 2000 RESULTS Relevant Information Profitability Asset Quality Capitalization Other Sectors Internet Efficiency Projects & Alliances II. MANAGEMENT’S VISION & STRATEGIES.

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7th Latin American Banking Conference Salomon Smith Barney

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  1. 7th Latin American Banking Conference Salomon Smith Barney New York March 08, 2001

  2. Contents • I. 2000 RESULTS • Relevant Information • Profitability • Asset Quality • Capitalization • Other Sectors • Internet • Efficiency Projects & Alliances • II. MANAGEMENT’S VISION & STRATEGIES

  3. I . RESULTS 2000

  4. Relevant Information • Banorte created provisions in 3Q00 against stockholder’s equity for 1,737.7 million pesos to cover all contingencies with Fobaproa and to comply with YR2003 capital rules. • GFNorte 2000 accumulated profit of Ps 1,677.3 million, a 36% increase over that of 1999, obtaining a ROE of 21%. The Banking Sector obtained profits of Ps 1,463.9 million, showing a 48%growth in the same period, excluding Pension Funds. • During 2000, GFNorte’s Non Interest Expense decreased by 13.0% compared to 1999. The Banking Sector decreased 15% in this line for the same period. • The Banking Sector performing commercial, mortgage and consumer loans increased by 23% in the year, meanwhile total past dues decreased by 17%. • The Banking Sector past due loan ratio decreased from 5.8% to 5.1% and the Reserve coverage stood at 101.1%. • The Banking Sector capitalization ratio was 12.0% with, Tier 1 of 11.1% and Tier 2 of 1.0%, using 2003 rules.

  5. Relevant Information • Banorte strengthened its capital base to fully create provisions for Fobaproa and YR2003 and to take advantage of the tax loss carry-forward in Bancentro, which amounts Ps 1,735 million* by the end of 2000. Bancentro Banorte Equity $ 1,217 • Bancentro’s Fobaproa assets • Serfín loans management • Afore from Banorte • Brokerage House Mutual Funds administration • Traditional Banking Business • Money market from Brokerage House Brokerage House Equity $290 • Capital market business • Investment banking * Representing 35% of total cummulative losses for Bancentro (Ps $4,957 million)

  6. Group’s Integration GFNORTE 84.4% 8.3% 5.3% 2.0% Auxiliary Organizations Long Term Saving Banking Brokerage Brokerage House Annuities Factoring Banorte (Banpais) Pension Funds Leasing Bancentro Warehousing Insurance Bonding % Group´s Investment in Subsidiaries. December 2000.

  7. Banorte became a national bank improving its market position MARKET COVERAGE Branches Dec 00 Dec 96 % % 14° 6° Branches 156 2.3 452 5.9 States 7 32 Market Dec ‘96 Dec ‘00 BANORTE BANCENTRO BANPAIS % Rank % Rank Non Interest Deposits 5° 5° 6.8 11.8 Total Deposits 10° 5° 3.6 7.8 10° 4° 3.3 9.2 Loans Source: A B.M. Mkt. % for deposits excludes Financial Intermediaries and refers to Banking Sector exclusively. Loans include Fobaproa and source CNBV (September 2000).

  8. GFNorte’s organization is structured for servicing clients DON ROBERTO GONZALEZ BARRERA President Public Relations Corporate Development Corporate Examiner OTHÓN RUIZ MONTEMAYOR Vice-President & GFNorte’s General Director SUPPORT & CONTROL NON TRADITIONAL BANKING BUSINESS Government Banking Investor Relations BANORTE’S GENERAL DIRECTION • Specialized areas • Commercial, Corporate, Middle Sector and Private Banking • Territorials • Monterrey, West, México City, Northeast, Northwest and Southeast • Marketing • Legal • Treasury • e- Business • Long Term Savings Sector • Recovery Bank • Risk Management • Technology and Operations • Human Resources • Planning and Control

  9. A stock option for senior management was implemented • The stock option plan started on October, 2000. • 24 key top executives are benefited in the first stage. • The objectives of this plan are: - Retain key people - Move top management to maximize share value - Attract new top executives • 4.8 million shares were acquired for this program. (1% of total shares outstanding as of Dec/00) • An equivalent to one year of monthly salary is the amount assigned to each executive in the 3 year stock option program.

  10. Banorte has a national presence MONTERREY Tot. M.S. Branches 118 15.0 Total Deposits $36,020 29.2 NORTHEAST Tot. M.S. Branches 68 13.4 Total deposits $14,266 23.3 MEXICO NORTHWEST Tot. M.S. Branches 100 5.4 Total Deposits $22,032 3.8 Tot. M.S. Branches 32 3.9 Total Deposits $4,192 4.6 WEST Tot. M.S. Branches 104 8.8 Total Deposits $17,900 11.1 SOUTHEAST TOTAL M.S. Branches* 452 5.9% Deposits** $98,207 7.8% Tot. M.S. Branches 30 3.8 Total Deposits $3,797 3.5 December 2000 M.S. Market Share Millions Ps. * Includes Modules ** Excludes centralized Operations.

  11. Our Client base has increased through time as Banorte has reinforced its presence in traditional entities and moved further into new territories NUMBER OF CLIENTS (Thousands) 2,818 2,324 1,900 889 627 301 142 1994 ‘95 ‘96 ‘97 ‘98 ‘99 2000 Products % Accounts Checking Account 50.3% Investment 38.7% Credit Card 5.6% Credits 1.9% Money Market 1.7% Mortgage 1.5% Brokerage 0.3% Total Accounts 100.0% Includes the Banking and Brokerage Sectors.

  12. Supported on Banorte´s technological platform, electronic and phone banking have grown aggressively Transactions 2000 (millions) Units Call Center 10.1 9,512 POS 7.4 9,037 6,398 PC Banking 17.5* 3,750 6,286 4,548 3,318 2,458 1,988 1,538 1,341 ATM’s 100.7 986 990 1,434 218 408 130 212 1994 1995 1996 1997 1998 1999 2000 December 2000; * Tradicional & Internet; Call Center = Number of calls

  13. More than 50% of all transactions are channelled through electronic banking TRANSACTIONS BY DISTRIBUTION CHANNEL 2000 44.7% 37.3% 7.2% 5.6% 3.6% 1.6% PC BANKING TELEPHONE BANKING BRANCH ATM POS INTERNET Dec, 2000.

  14. Profitability

  15. GFNorte has maintained constant earnings growth ACCUMULATED NET INCOME 1,677.3 1,557.0 1,521.9 1,135.5 1,234.0 828.8 705.1 685.6 '95 '96 '97 '98 '99 ‘00 Book Value 10.3 8.9 13.7 15.7 16.0 15.2 Per Share (*) Extraordinary Income: 1997: $693.1 & 1998: $421.5 Extraordinary Income Millions as of December 2000. (*) Based on 493.2 millions of shares.

  16. GFNorte has increased its net income per share by 36% NET INCOME PER SHARE 3.40 2.50 36 % 1999 2000 Pesos as of December 2000.

  17. GFNorte increased it’s ROE maintaining a market leadership ROE GFNorte 21% 21% 21% 15% 15% 6% 5% 1999 2000 BANACCI GFNORTE GFBVA- BANCOMER GFBITAL GFSANTAND Source: Press Release each bank.

  18. A major contribution to earnings was that of the Banking Sector with 87% of total Group´s earnings 2000 GFNORTE EARNINGS 4% 3% 2% 5% BANKING BROKERAGE LONG TERM SAVINGS HOLDING AUXILIARY ORGANIZATIONS 87%

  19. The negative impact of interest rates and lower income from IPAB was more than offset by higher volumes of operations, non interest income and efficiency improvement TOTAL GROSS INCOME NON INTEREST EXPENSE 10% 7,942 8,789 6,942 5,881 IPAB Margin 57% 1,928 822 15% 1999 2000 Margin Operation 7% 5,524 5,115 TOTAL NET INCOME 1,563 1,052 Non Interest Income 50% 2,005 1,336 48% 1999 2000 Million of Ps. Data as of December 2000 Market interest rates dropped 6.3 percentual points in one year period. Important interest rate drop on IPAB notes. 1999 2000

  20. The Recovery Bank, that was created in 1997, had excellent results. At present time it has 761 employees distributed in 33 regional offices ASSETS UNDER MANAGEMENT 2000 RECOVERY $ 5,561 millions pesos 57,317 41,473 Serfín $17,300 Loans Others 15% 38 % Cash 85% 1999 2000* Current Ps. * Includes $8,547 millions of own risk loans. Others includes repossesed assets, excluding restructurings.

  21. Asset Quality

  22. The Banking Sector performing commercial, mortgage and consumer loans showed a 23% increased in the year and past due loans decreased by 17% PERFORMING LOANS PAST DUE LOANS 23,912 19,483 4,935 23 % 4,120 17 % 1999 2000 1999 2000 Millions as December 2000 Performing loans not includes IPAB, governmental and financial entities.

  23. Banorte has maintained a low level of past due loans PAST DUE LOAN RATIO Banorte Banking Sector 7.8% 7.1% 5.8% 5.1% 5.1% 3.7% 3° 0.9% 1999 2000 SANTANDER- SERFIN BANAMEX BANORTE BITAL BBVA - BANCOMER Data as of Dec ‘00.

  24. Banorte maintained a reserve coverage of 101.1% RESERVE COVERAGE 443.7% 111.8% 106.4% 102.5% 101.1% BBV - BANCOMER SANTANDER- SERFIN BANAMEX BITAL BANORTE Data as of Dec ‘00.

  25. Capitalization

  26. Capitalization ratio stood at 12.0% with rules of 2003 CAPITALIZATION RATIO 2000 2003 2000 2003 2001 RULES OF: 16.0% 12.0% 12.3% 12.3% 11.2% BBVA - BANCOMER BANAMEX SANTANDER - SERFÍN BITAL BANORTE W/O MARKET RISK 20.7% 15.4% 14.3% 13.3% 13.8% Data as of December 2000.

  27. This strategy has shown good results that have been recognized by international rating agencies • In January 9, 2001, Fitch: • Granted a C/D rate for indivudual strength to Banorte, the highest for a mexican bank. • Granted the BBB- rate for local currency and BB+ rate for foreign currency, been the latter limited only by the contry risk. • A positive perspective that confirms the financial strength of Banorte.

  28. Others Sectors

  29. Other sectors are profitable and have gained market share 1999 2000 Net Income Market Share Net Income Market Share Long Term Savings: Afore 59.5 8.7% 68.3 8.9% Bancassurance (6.4) 0.9% 4.6 1.0% 1) Annuities (23.8) 6.7% (32.8) 9.8% Brokerage Sector: Brokerage House 161.2 5.1% 27.1 5.6% 1) Auxiliary Organizations: Factoring 29.1 17.5% 42.4 19.9% 1) Leasing 11.3 4.9% 23.1 4.8% 2) Warehousing 1.0% 2.1% 3) 2.5 13.7 Bonding N.A. 6.3 6.2 N.A. Millions as of December 2000. Wholesale Participation. 1) Sep ‘00. 2)Nov ‘00, 3)Jun ‘00. Market Share: Afore & Annuities: Number of Affiliated; Bancassurance:Premiums; Brokerage House: Assets under management; Factoring & Leasing: Total Loans.

  30. Our Pension Funds Management company has shown an outstanding performance AFORE INDICATORS BANORTE INDUSTRY Total Expenses per contributor 1) Ps 261 Ps 558 Contributing Affiliates growth * 24.7% 17.7% Commissions growth * 55.9% 27.7% 1) Source: Salomon Smith Barney, Private Pension Funds in Latin America. Published December 2000. Total expenses as of September 2000. * Source: ING Barings; Sep/2000 vs Sep/1999 in real terms.

  31. www.banorte.com

  32. Since 1995 Banorte has had presence in Internet through www.banorte.com and has increased its acceptance in the market • Home Banking.- with more than 150,000 transactions per month and 30,000 clients. • Business PC Banking.- with more than 75,000 transactions per month and 3,400 business. • Our new services include: • Credit Card payments for e-commerce businesses and Internet virtual credit card. • Acquisition and payments of Banorte-Generali insurance policies by Internet. • Stock and mutual funds trading.

  33. Next steps in Internet • Increasing the functionality of service platforms besides making strategic alliances as a way of growth. • Increasing the volume of operations improving customer service quality and trust. • Developing new businesses. • Using Intranet to: • Support the commercial process • Transform the internal process • Motivating the development of a new technological architecture.

  34. Efficiency Projects & Alliances

  35. In order to improve it’s operating efficiency, GFNorte has three main projects in process EVOLUCION Aimed to improve the efficiency of the Group’s operations, to control operative risk , to reduce the organizational structure cost and to improve internal control. TRANSFORMACION Implement a more efficient credit process that allows to optimize the risk and profitability levels. PROFITABILITY Automated profitability measurement of each business area by territory, branch, product and client. This tool is fundamental for decision making.

  36. GFNorte has made several alliances aimed to improve its value Banorte’s clients will have access to this spanish bank and viceversa. Third most important business in money transfers from US to Mexico. Tourism spots development. Additionally, other specific associations:

  37. II. MANAGEMENT’S VISION & STRATEGIES

  38. PROFITABILITY GFNorte has followed a clear and sucessful strategy for increasing it’s profitability External Factors Strategy Deposit Volume and Mix Interest Rate New Loans Non Interest Income IPAB Income Non Interest Expense Recovery Risk Control

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