Treasury and Financial Markets Division

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1 3ER PROGRAMA INTERNACIONAL SOBRE MEJORES PRÁCTICAS PARA LA BANCA DE DESARROLLO: EL MODELO NAFINSA Treasury and Financial Markets Division October 18 th 20 th 2017, Mexico City

2 Content Mexico: Outlook and Economic Program NAFIN: Main Key Financial Indicators. Treasury and Financial Markets Division. o o o Capital Allocation. Revenue and Profitability. Funding Sources. 2

3 Economic Program 2018 Recent performance of Mexican economy The Mexican economy has registered a positive performance during 2017 and, despite the uncertain external environment, it has improved during the year. A flexible domestic economy that, supported on the Structural Reforms and the timely implementation of responsible fiscal measures, has allowed the country to adapt and overcome negative external shocks. Although the inflation increased during 2017, it is expected that in 2018, it converges towards its 3% target; since the end of 2015, the timely measures carried out by Banco de México have prevented the inflation expectations from deteriorating. Economic Program 2018: objectives and goals The Economic Program for 2018 is consistent with the preservation of macroeconomic stability, as a condition for the economy to maintain the growth dynamics, in a difficult external environment and with downside risks that have declined but persist. For 2018 fiscal year, it is proposed the generation of primary surplus equivalent to 0.9% of GDP. In this sense, the Mexican Government has set a Public Expenditure cut for an amount equivalent to -0.3% compared to the expenditure approved for With this cut, indebtedness will not increase, due to they are not considering reforms in tax policy. The achievement of the public balance goals in 2018 will allow to stabilize the Historical Balance of the Public Sector Borrowing Requirements (HBPSBR) vs GDP ratio, which is expected to reach the 47.3% of GDP in 2018 (48.0% in 2017 and 50.1% in 2016) and decrease to 45.3% in

Strong Mexican Financial System Strong Loans Market

Market (MXNbn) (2015 Loans to Private Sector as % GDP)

Ratio Banking System Coupled with Stable Profitability 4

4 Strong Mexican Financial System Strong Loans Market Growth in Mexico But Still Remains as an Underpenetrated Market (MXNbn) (2015 Loans to Private Sector as % GDP) Robust Asset Quality and Adequate Capitalization Capital Ratio Banking System Coupled with Stable Profitability % 16.0% 15.5% 15.8% 14.7% 15.4% Source: CNBV and World Bank.

5 NAFIN: Main Key Financial Indicators NAFIN is a key institution of the Mexican Government for promoting the government s policies in order to expand economic and social development in Mexico with the main objective of generating jobs and regional growth through strengthening and modernizing the micro, small and medium sized companies. Figures in millions of pesos Figures in millions of dollars Jun 2017 Jun 2017 Total Loan Portfolio $120,602 $150,299 $171,702 $214,313 $198,098 $10,967 Total assets 352, , , , ,817 25,678 Total liabilities 329, , , , ,422 24,051 Stockholders Equity 22,573 24,096 25,386 28,109 29,395 1,627 5 Selected Ratios Jun 2017 Source: NAFIN ROAA(1) 0.52% 0.45% 0.37% 0.28% 0.24% ROAE(2) 7.72% 6.74% 4.87% 5.05% 3.57% Capital ratio(3) 15.30% 14.62% 13.57% 13.26% 13.83% NPL ratio(4) 1.48% 1.29% 1.13% 1.04% 0.95% NPL coverage ratio(5) 202% 209% 248% 259% 320% Nota: Financial data converted to US$ using the FX rate of MXN per US$1, the exchange rate published by Banco de Mexico on June 30, ) 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). (2) Calculated as profit attributable to NAFIN divided by average shareholders equity. (3) As of June 30,2017.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. (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) Excludes guarantees.

3% $322,941 $287,616 $168,751 $144,418 $116,452 $373,475 $206,152 $348,105 $190,878 $404,473 $225,439 $22,294

6 (Millions MXpesos and Millions USD) Balance of the Private Sector Loan and Guarantee Portfolio $13,608 USD millions $246,884 Nominal Growth: 51.3% / Annual Average: 14.8% 16.5% 15.6% 12.3% $322,941 $287,616 $168,751 $144,418 $116,452 $373,475 $206,152 $348,105 $190,878 $404,473 $225,439 $22,294 USD millions Loans 6 $130,432 $143,198 $154,190 $167,323 $157,227 $179,034 Guarantees Dic Dic Dic Dic Jun Budget Meta 2017

7 Equity Capital & Capital Ratio $1,081 USD millions 19,611 Equity Capital (millions MXP & millions USD) 21,536 22,942 24,096 $1,544 26,710 28,005 Capital Ratio* USD millions Average: 14.5% 16.4% 15.3% 14.6% 13.6% 13.3% 13.8% 7 dic-12 dic-13 dic-14 dic-15 dic-16 jun-17 dic-12 dic-13 dic-14 dic-15 dic-16 jun-17 *The capital ratio is above the minimum set by the authority and reflects the financial strength of the institution.

Capital Allocation The following capital allocation for credit and market risk-taking has been authorized by the Board of Directors: 24%

to contribute to the bank's profitability. Credit Credit loans and Guarantee Program.

Tactic level Financial Markets and Treasury : 4,425 MDP 251 MDD Financial Markets and Treasury: 4,425 MDP 251 MDD MDP / MDD Trading 1,765

8 Capital Allocation The following capital allocation for credit and market risk-taking has been authorized by the Board of Directors: 24% Strategic level 18,643 MDP 1,057 MDD 2% 50% 24% Financial Markets and Treasury Funding of credit loans and generation of strategic assets to contribute to the bank's profitability. Credit Credit loans and Guarantee Program. Equity Investment Investment Proyects, Corporate Finance and Venture Capital. Tactic level Financial Markets and Treasury : 4,425 MDP 251 MDD Financial Markets and Treasury: 4,425 MDP 251 MDD MDP / MDD Trading 1,765 MDP 100 MDD Treasury 2,660 MDP 151 MDD 8 Buffer It is managed by Risk Management Committee at the tactic level. FIX Exchange rate as of September 11th, 2017 published by Banco de México: MXN per US$1. MDP: Millions of pesos ; MDD: Millions of dollars.

Revenue and Profitability 2,042 MDP 156 MDD 4,092 MDP 313 MDD 43% Cumulative revenue: 9,148 MDP (571 MDD) 2,421 MDP 164 MDD 4,337 MDP 294 MDD 50% 4,528 MDP 263 MDD 1,740 MDP 101 MDD 33%

of the bank with 9,148 millones de pesos (571 MDD). With a profitability level over capital of 41% (before current expenditure). Revenue Capital 9 2013 2014 2015 2016 Jun. 2017 Notes: 1.

9 Revenue and Profitability 2,042 MDP 156 MDD 4,092 MDP 313 MDD 43% Cumulative revenue: 9,148 MDP (571 MDD) 2,421 MDP 164 MDD 4,337 MDP 294 MDD 50% 4,528 MDP 263 MDD 1,740 MDP 101 MDD 33% 4,320 MDP 210 MDD 37% 1,872 MDP 91 MDD 1, MDD 4, MDD 43% During the period between June 2017, the Financial Markets and Treasury Division has contributed to the revenue of the bank with 9,148 millones de pesos (571 MDD). With a profitability level over capital of 41% (before current expenditure). Revenue Capital Jun Notes: 1. Includes Fund Operator (OFINSA) revenue and commissions Financial Agent. 2. Considers year ending FIX exchange rate published by Banco de México. MDP: millions of pesos; MDD: millions of dollars.

10 Funding Sources As of June 30 th, 2017, our total liabilities were 434,422 millons of pesos (24,051 millons of dollars) from which 84% was denominated in pesos and the remaining 16% was denominated in foreign currency (mainly US dollars). USD 16% In local currency the main short term funding sources are repo transactions and promissory notes, and the long term funding resources are Bank Bonds (CEBURES) which are issued through syndicated auctions. In Agosto 2016, NAFIN issued the first Green Bond and, in July 2017, the first Social Bond both denominated in pesos and listed in the Mexican Stock Exchange (BMV). In foreign currency NAFIN has a Program of Certificates of Deposit for up to 3,000 million dollars, through our London Branch, with tenor between 7 days to 10 years. As well, we have credit lines with commercial banks and with International Financial Institutions (OFIs). In October 2015, NAFIN issued the first Green Bond denominated in US dollars in Mexico and in March 2017 a private issuance in the Samurai Financial Market (Japan) for JPY 10,000 millons. Certificates of Deposits 1% Cebures 14% PRLV's 33% Interbank loans 1% Repurchase agreements 51% Interbank loans 1% Bonds 16% Clients 18% OFIs 15% MXN 84% Certific ates of deposit s 50% 10 Note: Total funding sources correspond to total liabilities as of June 30, Includes repo transactions.

11 Thank you! Pedro Guerra Menéndez Financial Markets and Treasury Division 11

12 Economic Program 2018 Among the principal assumptions considered in the Economic Program 2018, the following stand out: Other assumptions Variables GDP real growth % Inflation (%). Dec/Dec Average nominal exchange rate. (pesos per dollar) Interest rate nominal end of period (Cetes 28 days, %) Current Account (%GDP) Fiscal Balance(% GDP) Traditional Traditional with investment Oil (Mexican mix) Average price (dollars / barrel) Oil production platform (mbd) Oil export platform (mbd) , , A 2.0% recovery in crude oil production is expected, which would be the first increase since 2004, reflecting the positive effects of the Energy Reform. Up to 470 MMP net domestic indebtedness of the Federal Government is requested, lower by 25 MMP to the 2017 requested ceiling, and a net external debt ceiling of up to 5.5 MMD, lower by 300 million dollars to the figure requested for PEMEX requests for 2018 a net internal debt ceiling of up to 30 MMP and a net external debt ceiling of up to 6.2 MMD; the 2017 requested ceilings were 28 MMP in the internal and 7.1 MMD in the external. 12 MMP: billion pesos. MMD: billion dollars.

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