Q1 2022 Intercorp Financial Services Inc Earnings Call
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Thank you for holding for Iff's as first quarter Conference call. The conference will begin in a few minutes. We appreciate your patience in the meantime, please refresh your screens in order to update the webcast presentation.
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Good morning, and welcome to Intercorp financial services first quarter 2022 conference call.
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It is now my pleasure to turn the call over to Raphael bourgeois of inspire group, Sir you may begin.
Thank you and good morning, everyone on today's call Intercorp financial services will discuss its first quarter 2022 earnings were really pleased to help without a misstep lethal you pick up the yellow Chief Executive officer of Intercorp financial services.
Micaela Casassa Chief Financial Officer of Intercorp financial services, we set them on Saturday last Saturday.
He's executive officer, looking better with them.
Mr. Bruno furniture, Chief Executive Officer that'll be available he started Carlos Toady, Vice President of English of retail banking and channels of inter bank.
They will be discussing that we sold would be should we be by the company yesterday may 12, maybe social a webcast presentation to accompany especially on during this call.
Please see a copy of the presentation or to be honest with bone.
Now available on the company's website or you face that combat E to download a copy.
Wife's Fortinet recently, if you need any assistance that they at least called inspire group in New York at 212, saving 109 weeks eight weeks.
I would like to remind you that today's call is for investors and analysts only therefore questions from the media when they'll be taken.
Please be advised that forward looking statements may be made during this conference call. These do.
Do not account for future economic circumstances industry conditions, the company's future performance or financial results I thought if payments me are based on several assumptions and factors that could change, causing absolutely shows to materially differ funded choline expectations for a complete note on forward looking statements. Please refer to the earnings presentation.
A report issued yesterday.
It's now my pleasure to turn the call over to Mr. Philippe <unk>, Chief Executive Officer of Intercorp financial services for his opening remarks, we forgot to Yano. Please go ahead Sir.
Thank you Rob.
Thanks, everyone. Good morning.
Welcome to our first quarter 2022 earnings call. We really appreciate you taking your time to attend our cold and I hope that you and your families remain safe and healthy.
Let me start by giving you a brief overview of the macro and political situation in Peru.
Despite accumulated GDP growth views reached three 9% in February we expect this year's GDP growth to be somewhere in between two 5% and 3% mainly explained by three factors one.
Less favorable international environment due to global financial conditions, just restrict us in China.
Russia, Ukraine conflict.
Take one.
Georgia, increasing production cost.
Sure.
Negatively impacting business as Martin and families purchasing power.
The Central Bank is tightening its monetary policy with the recent announcement of a new 50 basis points rate hike.
Yesterday.
And third the level of political uncertainty in our country.
We believe that the political front, we will continue to be uncertainty in the coming months.
It will take some time for public and private investment to resume its growth pattern.
Despite positive scheduling in light of commodity prices on exports positively impacting the micro accounts.
And their digital scenario I S.
Continues to show resilience.
Our core banking franchise continues to recover with a strong growth in consumer finance and commercial banking with sound risk indicators.
We still face volatility in our investment operations, but all in all we have continued our recovery path.
As we have mentioned in the past with.
We strongly believe that our people our go to I don't know, where our ability to adapt to changes to our our two the two tiered strategy are our core strengths.
That will allow us to grow profitably in the future.
Our deployment of data products and services continues to world and now with franchise continues to grow the number of customers and revenues with sound levels of efficiency.
And we will see during the presentation, we recently announced the acquisition of a 50% stake that we did not own in easy pay a transaction that reinforces our commitment to Purdue and complete our 100% ownership of the company.
We believe this deal will strengthen our strategic and competitive positioning in the payments landscape in Peru, and will allow us to explore new sources of growth I'm wondering if the patient opportunity both with our retail customers and with merchants.
I know you fish, we continued to make progress and to grow in a sustainable way, we're committed to fulfill our purpose, which is to empower all peruvians to achieve their financial will be.
Now, let me pass it onto Micaela to update you on the results of this quarter and to give you a detailed review of our operations. Thank you very much and remains healthy.
Good morning, and welcome everyone to Intercorp financial services first quarter 2022 earnings call.
This time, we will focus on four items on the agenda, which include financial highlights you announced the acquisition of VC PE, all key messages and takeaway.
I will start with a brief summary of financial highlights on slide 328, the main highlights on.
On slide three I, you said you had a good quarter, reaching a narrowly of 17, 4%.
Two a strong recovery in core business and despite the negative impact from the investment portfolio, especially any any hold back on Friday.
And grew more than 50% on a quarterly basis. Thanks to the strong growth in the quarterly results from the core banking business as well as to the partial recovery of insurance and wealth management investment portfolios on a yearly basis and show a decrease of 24% mainly due to the extraordinary results Rajiv.
In the first quarter of 2021 on the investment portfolio is three subsidiaries, which did not take place this year.
On slide four at interbank slow recovery of core business in the first few resulted in $19, 1% I really.
There is a solid performance in consumer finance and SME with credit cards, and personal loans up 41% year on year.
Double digit growth net interest income and fee income there is a shift in the loan mix and higher rates that aren't driving mean, reaching four 5% in the first quarter.
And we continue to have a consistent credit quality metrics with Costa free at one 4%.
I think that it would all air lease grew almost threefold content content with arrow at 15, 7%.
Rustiness plus collections increased 26% year over year return on the investment portfolio was five 1% impacted by negative mark to market and it continues to be the market leader in annuities with a 31, 6% share.
The first 222.
And intangible quarterly results are affected by negative impact from the investment portfolio.
These were impacted by low fish on the investment portfolio and there was a slight decrease in the asset under management due to the negative mark to market valuation.
I'm on the key performance indicators.
On slide number five I would like to highlight the continued recovery in the quarterly and yearly NIM of both inter bank you've got core.
Financial services, there has been a 20 basis point improvement in the quarterly Nemo, how you face driving the NIM for the year to four 5% on the other hand.
At interbank.
Leasing, meaning the quantity is 10 basis points driving the quarterly NIM to four 5% in the month of March mean up to $4 nine perfect. Okay. Moreover, the efficiency ratio I have.
Shows resilience. It has remained at healthy levels of 37% despite the negative impact on revenues coming from the investment portfolio.
On slide six total revenue for all of your face grew double digit on a quarterly basis essentially the partial recovery of Douglas revenue from investment gains.
But more importantly, we would like to highlight the yearly recovery revenues at interbank, which reached 16.5% when excluding the extraordinary gains registered in the first half in the first quarter last year from the investment portfolio.
On slide seven.
The efficiency ratio was 77, 2% in the quarter in the high ratio of 75 to <unk> 37 guidance, even at the beginning of the year. This quarter. We have continued to see a recovery of expenses driven by banking activity when compared to the previous year. It is important to remember that during 2020 I used to have.
It was one of the few financial services institutions seem to redo, which was able to execute an aggressive cost reduction program, which ended up reducing the cost base, 5% for the full year and improving the efficiency ratio in such a challenging environment at interbank efficiency ratio is at 41, 7%.
In the quarter above the $39, 6% registered last year as expenses have increased 12, 5% in line with our expectation and as reflected in our guidance the increase in cost in there, but it is mainly due to three reasons.
Third at 12, 5% increase in technology costs, and new ventures, which includes the technology expenses for our digital transformation as well as new investments in payments in our venture with Rocky.
Second a 19, 6% increase in personnel cost, which is mainly coming from the increasing mandatory employee profit sharing in line with the improvement of the local GAAP earnings at the bank.
And stared at 27, 8% increase in variable costs related mainly to credit cards.
With the percentage increase in credit and debit cards turnover should we generate fees and financing volumes.
Moreover, we have continued with our branch optimization program, reaching a total was actually number of Brian 237% or more than hundred branches from the peak in 2016.
On slide eight we continue to have solid capitalization position as evidenced by the ratio of interbank, but I'll show you definitely wouldn't anyway core equity tier one ratio at interbank is 10, 9% as of March this year slightly below our 11% guidance due to the dividend distribution that took place in March.
This ratio will recover in the following months till the end of the year above guidance now.
Now, let's move to the recently announced acquisition of <unk>.
On slides 10 and 11.
Interbank, what's already owned 50% of each one of the largest acquiring companies in the country with the recent acquisition by <unk> of the remaining 50% for $80 million I used to actually becomes 100% owner of this company, which has three main lines of business.
Sure Yeah quietly business were easy pay is the car crashes market, neither accepting all different cards and payments platforms, including visa Mastercard Amex diagnosed apple pay in Turkey, and Yelp, among others in which revenues represent around 74% of the total revenues half of 2021.
Second correspondent banking operating around 30% of the market in which revenues represents 13% of total instead.
He is also a critical professional operating again around 70% of the market in which revenues represent 9% of total.
Is it pay is a company that has been growing substantially in the past year, especially in the past 15 months as evidenced by the 60% growth in the number of Americans and more than 140% growth in the number of transactions. Moreover, it has monetize this growth as evidenced by the 81.
Growth in revenues in the past 15 months and 175% growth in EBITDA, reaching 115 million soldiers in the last 12 months as of March 2022.
It's important to know she noted that there is still a big space for further growth given the low penetration of P O F and digital transactions in the country.
We believe this acquisition will enhance our payment strategy and the value of higher face for the following reasons.
First indeed, it is a fast growing and very profitable business second it is the leader in calculation business with a strong potential in e-commerce transactions.
Third there are additional potential for merchant financing and additional services for Americans and it will come to them and its value proposition without your Facebook Upsilon.
Together with some synergies and existing in the correspondent banking business.
Talking specifically about the opportunity for American financing, we wanted to share with you that before this acquisition, we have been piloting 100% digital solutions for self liquidating working capital loan to mere 10 linked to their pay P. O S flows, which could be used to start up in this opportunity in the short term.
Now I will focus on six key messages, we would like to take you home from his call on slide 13.
First we are operating in a very volatile macro and political scenario.
Second we have experienced a strong recovery in our core banking business, which is dreaming driving top line growth. So we have a healthy risk profile with consistent credit quality metrics for other income continues to be impacted by mark to market.
We continue to work on our two tiered digital strategy to foster growth and your faith and finally, we are making good progress in our sustainability.
On slide 15, we are showing the evolution of some of the key macro indicators the exchange rate Hassenberg Easter ups and downs in the past week, reaching three eight polished and all that.
Inflation has picked up two 8% as of April in line with high levels of inflation in other countries in that local currency interest rate has continued to increase as evidenced by yesterdays extra increase of 50 basis points of the central bank's reference rate, which stands now at 5%.
Expectations from the economic the activities both for the next three and 12 month are in negative territory at their lowest levels in the past month political uncertainty continues to be high and there are a number of measures that are currently being discussed that could impact our operations, including first the first a further extension of reactive.
Loans to a group of clients.
A further release of C. B S fans and Sir a further release of private pension funds.
Moving now to slide 17 through 19 on slide 17, we have seen a solid performance in consumer finance and SME indicators in the quarter.
Credit cards debit cards turnover have increased substantially year over year or 87% for credit cards at 52% for David <unk>.
This growth has allowed us to increase market share more than 270 basis points in the past 12 months for the combined to Nova Thanks, mainly to our interbank benefit program, our increased focus on E Commerce and high growth categories and finally also thanks to our Upselling strategy Murdo.
Credit card sales have increased 92% year over year getting close to 2019 letters.
New disbursement of personal loans have also increased substantially or 90% year over year. These two effects combined are driving credit cards and personal loans up more than 40% in the past 12 months.
On the SME front, we have seen a strong first quarter in terms of disbursement or three times, the disbursement of 12 months ago.
On slide 18.
One of the very good news of this quarter is the double digit growth in net interest income and fee income during the first quarter net interest income for interbank, New 15, 6% with a strong contribution from net interest income coming from credit cards, and personal loans, which grew 18% fee.
<unk> grew 14, 3% thanks to the strong growth of credit card fee income.
Due to the evolution of credit and debit cards turnover and also to the sustained growth of fee income coming from cash management services and commercial banking.
Other income at the bank was down 40% year over year, mainly due to the extraordinary the dates on the investment portfolio registered during the first quarter of last year. When we sold a portion of the government bonds, we held anticipating the increasing rate at.
Noting that other income would have also grown double digit all in all total core revenues for the bank grew 16, 5% year over year, a very slow recovery bank banking revenues, which is returning to a positive operating leverage.
On slide 19, we have seen a strong portfolio shift to higher yielding loans in the past 12 months with an acceleration in this quarter retail knows reached 52% of the total portfolio versus 45%, while a year ago.
Yeah.
Moreover, credit cards and personal loans reached 20% of the total loan book versus 15%, one year ago, and 18% one quarter ago. This effect together with the increase in the SME loan book still small.
The increase in rates is pushing me my what's reaching four 5% in the quarter at four 9% in the single month of March. Moreover, risk adjusted NIM has improved 40 basis points in the quarter and 100 basis points year over year up to three 6% we.
We expect the positive trend in NIM to continue in the coming quarters coming from the following trends and despite an increase in cost of funds for the full effect of races in a rating solid and Deutsche Bank.
Your weight in the portfolio of credit cards, and other personal loans will help as well as Smes.
The second positive trend would be the increase in rates, which will gradually increase our skills in all products and client segments.
And the higher weight of the loan book within the total earning assets.
Moving onto the third key message on slide 21 to 23, we have a healthy risk profile, which is still below pre COVID-19 levels on slide 22.
Cost of risk in the quarter was $1, 4% below our guidance of cost of risk below one 8% is still below pre COVID-19 levels from this quarter onward, we present stage three M. P. S and coverage ratio of stage three loans are the relevant indicators of credit quality fully aligned.
I FRS accounting standards, the NPL coverage ratio.
Of stage three loans at 169% is still above pre COVID-19 levels of 158% and this is mainly related to the coverage ratio of retail notes, which stands at 256% well above the 179% recalled.
On slide 22, and 23 to positive news.
On slide 22, the reduction of 55% from their peak of June of the rescheduled portfolio, which is true for both retail and commercial.
And on slide 23, with the reduction of 34% of reactive AR balances in the past 12 months, which now stands at 9% of the total portfolio.
Now, let's move to the fourth key message of Steve's presentation related to the negative impact from the investment portfolio from Mark to market on Slide 25, we are showing you. The historical return on the investment portfolio of both interfere with any penny.
This quarter, both companies have been impacted by negative mark to market with a return on investment portfolio of five 1% for industry and negative four in.
Market conditions are still negatively impact in these figures, which historically has been above 6% fall.
In around 10% for <unk>, we expect the quarterly volatility to remain during the second quarter and hopefully to improve in the second half of the year.
On slide 27, there is a summary of our two P. A digital strategy, which we introduced to you in the last conference call.
One time, we have led the digitalization of our core activities with their main golf, allowing clients to be able to interact with our U S companies and fulfill their needs hundreds per cent digitally and with a high M. P. S. As evidenced by the 20 additional points in N. P. F. R V.
Digital customers when compared to non digital retail customers on the second front, we have new growth initiatives, which are aimed at increasing the client base and to create new sources of revenue and profitability.
They need on their digitalization from some examples of our digital solutions include the Piggy Bank, a 100% digital solutions for savings, which allows clients to have specific buckets of savings for specific purposes and helps clients to place with guests one site.
My side and then there's another solution in the interbank, we chose clients their credit score and film rental guys to control expenses and manage their budget it which now incorporates a credit scoring solution and gives them suggestions on how to improve their credit worthiness in there.
But benefits are 100% because our rewards program platform, bringing the P to P and QR code payments solution D V. The law or by buy now pay later solution link digital purchases interbank don't be for businesses, which allows commercial clients to open business account, 100% digitally and fulfill their cash.
Management needs. So I'd be the first 100% issue rest problem and finally, Ernie or mutual fund investment platform on.
On the second front of our digital strategy, we have a number of initiatives, which we have been working on in the past year that are at different stages on the consolidated gross faces we are including.
First in their 100% digital account for retail and commercial clients, which today constitute the most important part of growth of our client base for both retail and commercial clients second to get our digital wallet and third clean a P to P and QR code payment solution, which enables interoperability.
Pete with multiple financial institutions in a bridge between the Bank Indian Bank.
We are also working on.
Additional initiatives, which are currently at early stages of development, which includes roughly about our alliance with raffi and shop at our marketplace aiming to become the preferred e-commerce option for ISS estimate and assembled to test.
Our initiatives such as the need they love and loyalty initiatives. All of these initiatives are being developed which with our strong approaching advanced analytics, which allow us to improve our risk management to increase the level of personalization, England, extrality campaigns and to increase say leaf and their heat rates.
On slide 28, we continue to see strong progress you know digital indicators as of March 2022, digital customers reached 65% of our customers who interact with the bank during the last 30 days up five points in the past year.
Sales have also performed well at interbank retail digital face with 61% in March and that and they'll say, we would've thought digital sales reached 81% both increasing sharply in the last year. We have continued to see an important number of new digital accounts being opened both for individual and business as of the end of <unk>.
60% of new retail saving accounts were opened digitally while 89% of new business accounts were opened digitally.
We are also introducing a new indicator to show some of the improvements in our analytical capability. That's when the life campaign, which has reached 25% as of March this year, increasing from 11% one year ago.
Now moving to our new growth initiatives on page 29 to <unk> is a digital wallet and I like I like to bank the Unbanked eat.
He was the first digital wallet in Peru to be able to the Liberal government financial aid in the context of Covid Colby, 100% digital to meet two bedroom and today has reached one 8 million users. We have increased five times the number of merchants using Tolkien the last 12 months and six times the number of transactions the sources.
The strategic rationale we see for two key <unk> first it is a bridge between the bank and the bank enlarging the payment ecosystem also met and.
And second there is potential monetization through first part second service payments.
Slope enforced micro loans.
On Slide 30, Sling has reached 7 million users in two year out of which 42% used interbank as a main bank.
We believe clean is the most successful launch of a digital solution.
The high number of users are Keith in only two years. It provides P to P. A QR code payments with the interbank in two key allowing interoperability with BBVA Scotiabank and many other financial institutions. The number of micro merchants have tripled during the last 12 months as well as the number of.
Transactions that have actually doubled in the past three months the surface of value, we see for clean up.
First it improves our value proposition for retail customers and merchants by providing them a seamless digital payment experience through Q R. R. P to P 24 seven.
Second it replaces cash and bring more clients to the ecosystem and so it provides a monetization opportunity on payments at merchant P. O S similar to debit card transactions.
Moving to our initiative currently at early stages on slide 31, so that the bank our alliance with Rabat has reached more than 60000 credit cards played current NPS is up 50 basis points. Nevertheless, This initiative continues to be at an early stage and its path for what continues to be refined.
The second initiative in early phases shops that are market based aiming to become the preferred e-commerce platform for our U S customers.
After its initial pilot in the second half of 'twenty 'twenty. It was launched in the first months of 2021 and reached almost 70000 active customers for the full year 2021 and more than 20000 have made a purchase in the first three months of this year or three times more than the lever registered in the first three months of 2021.
All of the different initiatives described described before has the purpose of accelerating even further the growth in our client base to improve our digital value proposition and to increase the level of engagement satisfaction and loyalty among others.
Right.
32, you can see that.
Our retail client base has grown 19% in the last 12 months, reaching $4 7 million customers.
34% when talking about digital customers and 21% when speaking of commercial clients most of which are being acquired digitally.
The last key message refers to our sustainability efforts as introduced during our last conference call. The focus of our ESG initiatives. During this year will be on three fronts.
First to promote inclusion in my conversation second focus on environment, and sustainable finance and third to promote a culture of sustainability as of March. This year, there have been different positive development, which we would like to share with you.
First on the environmental pillar, we have two sources of good news first in their bundling they'll say well, we don't have obtained their carnival footprint for 2021 and second we have Disney stores. The first sustainable linked loan for the fishing industry with a $22 million.
On the social front, we have recently launched our 100% digital financial education platform, which aims at promoting financial inclusion in the country I've done the math.
We have again been awarded great place to work top officials for interbank interest like water and Italian. Moreover, we have received the number one position in a new category created which is best place to work from home.
On the corporate governance front, we received the good news that we have been included for the first time in the general ESG index of the alternative I noticed the leap.
Before handing the presentation, let me now move to the comparison with guidance for this quarter.
Capital ratios to remain at sound levels with total capital ratio above, 15% and core equity tier one ratio above one.
11% the first quarter total capital ratio stands at 15, 5% above guidance and they've got equity tier one ratio of 10, 9% slightly below guidance as we have guessed. If you didn't see this but will gradually rebuild capital in the coming months.
Second.
Our continued path to recovery in core profitability with Iff's I really above 16%. That's the guidance in the first quarter I really was 17, 4% above guidance.
They're high single digit growth in total loans led by double digit growth in consumer loans together with the substitution of proportion of active launching commercial bank as of March total loans grew 10, 2% slightly above guidance and consumer loans are growing more than 20%.
Fourth revenues will continue to recover with NIM between 4.2, and four 6% after close in 2021 at four 1%. The recovery of NIM is taking place at interbank, a little faster than expected with first quarter 'twenty to NIM already at four five in <unk>.
NIM at four 9%.
Fifth cost of risk would be below a 1.8%, it's still below pre COVID-19 levels.
The first quarter cost of risk is at one 4%, reflecting a good quality portfolio and well below guidance and finally, we will continue with our focus on efficiency and we expect the efficiency ratio to be between 75, and 77% the first quarter efficiency ratio of 37% in line with our guidance on.
On Slide 37, let me recap the six key messages of this presentation.
First we are operating in a volatile macro and political scenario second we have seen a strong recovery in our banking revenues third we continue to have a healthy risk profile for our investment income has been impacted by mark to market, but expect normalization throughout the year.
Five our two tier digital strategy continues to foster our growth and we are making good progress in our sustainability efforts.
Finally, we wanted to let you know that we will be held in our first phase two an investors day on June 22 to.
To discuss more in detail our strategy and we hope you can all be there with us.
Thank you very much now we welcome any questions you might have.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you were using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
The first question is from Ernesto get along though with Bank of America. Please go ahead.
Okay.
Good morning, everybody.
Okay.
Okay.
Are you there we can't hear you.
No no weekend.
The Chicago, Although you can you hear us.
It sounds like it should be up along those having audio issues, we'll move on to the next question is from Jason <unk> with Scotiabank. Please go ahead.
Luis Felipe and Michela.
Thanks for the presentation. My first question is on the sensitivity.
Hum.
This is a net interest income to interest rates clearly.
Looks to be having a positive effect.
How is that positioning itself, what what is the sensitivity today.
So 100 basis point change on the.
NII, but also on on your balance.
Balance sheet on your investments.
Give us some color there that would be very helpful. In and how you think management can prepare for what you expect going forward.
And my second question is on the Rocky by joint venture.
Some figures on credit cards, and NPS and <unk>.
I saw on the 20th that at the end of December 2021, Rocky back or 209000 customers. So maybe you can give us some perspective on <unk>.
And how that's evolving and what you expect there relative to what you.
Showed for March and what are the number of clients at the end of two.
2021, thank you.
Yeah.
Okay, Jason Thank you very much for your question.
Maybe Mikael you can start with the sensitivity on the NIM question.
I can just wrap it up.
Hey, good morning, Jason.
As I mentioned during the last call I mean, we haven't actually monthly updates in our sensitivity calculations because given the beat a number of increases in rates not this is actually changing okay, but basically what we have seen is that 400 basis points increase in the policy rate. Okay. We are.
Seen on a neutral to positive effect, okay. What what we are seeing now as the let's say the further improvement in mean vessels, but we expect it is I mean, it's more coming from the portfolio mix, Okay, but also not to these increases in <unk>.
It's what is lagging a little bit behind but we believe we will start impacting in the next months if they in the financial expense. Okay. Export for example, there have been a number of positive impacts in the cost of funds coming from exchange rate for example, okay and that.
We will not necessarily be repeated in the future. So NIM will continue to improve as we see the full effect of the rates.
I think Rishi base that we have already in the portfolio, but we are expecting a faster increase in the cost of funds and we felt before this is why the update that we have today for solid rates is neutral to positive impact now when we shift to the dollar impact of 100 basis points increase.
This is a little bit different and it's actually a negative impact.
Around a I don't know between four and $5 million, because we have less earning assets in dollars in more more bonds in and liabilities, okay. So and hopefully with the mix of the two and then with the shift of the portfolio. What we are expecting is that.
At.
B I mean on top of the English as Ray said, we have seen and even with the dollar once NIM will continue to improve in the coming in the in all of the coming quarters.
To be in the high range of our guidance.
Yeah.
Yeah, Yeah, and then address particularly.
No interest rate sensitivity of the portfolio.
At the bank.
Very straightforward we do have.
A large portfolio of sovereign bonds.
All of them related to the Peruvian government there like short short term bonds.
The average duration is three years. So so the impact there is important.
So far over.
Okay.
A portfolio of around 8 billion solid.
The rate moves that have been very sharp.
Negative impact of around 700 plus million.
Which are in <unk>.
Sure.
So they don't hit the P&L they go to to equity.
Given that we have plenty of capital that's not a concern with the involvement of time, given the short duration that should be slipping away.
We're obviously monitoring that and then I think the other important part of what we do have investments that could be sensitive to interest rate movement is obviously in our insurance portfolio. Let me pass it onto two on shuttle who can address the specific effects that we can help there how we are managing that.
Great. Thank you.
Our portfolio.
A high percentage of fixed to introduce at around 80%.
I'll definitely Arkansas, Tony already to rate.
Rate increases.
They've gone through.
<unk> results.
Ooh.
Reduce the possibility.
Realized gains because.
Acuity.
On the other hand, when we're seeing is that.
As rates are.
Richard.
Moving up are the reason, we're offering our clients.
She speeds more spreads are increasing so.
Even though.
You reduced possibility.
Basically the short term and the long term.
Right.
Silicon Beach.
Okay. Thanks, a lot shallow.
Okay. Thanks, and then on the rubber bands.
As we have mentioned early.
Early stage venture for us.
<unk> was launched it had like a couple of setbacks because of that.
So we kind of realignment results. It is still early we are we are refocusing us as we mentioned we have biology in a way of just opening accounts, we reached as you well said 200000.
Accounts wallets.
<unk> reduced so in agreement with roughly that that was easy to place, but not very clear basketball monetization. There. So we have stopped actually growing through.
In the account and we moved to credit cards, where we have achieved close to 60000 credit cards.
And we are closely monitoring the evolution of who's got the button.
Is that the instruction on the product. However, we are not been very successful in those customers are actually taking notes on their credit card now they're using that really got.
The use of the benefits that are coming through the usage of the card in Rabat.
But we're having trouble and actually making that.
Big <expletive>.
Credit card loans.
Too many people are repaying their full amount. So it is actually because we've not so.
As you've seen in the last quarter, we almost did in growing number of spares.
Because we are reworking.
Value proposition segment of course tumors analyzing all the data where we're getting.
And on that note.
Early stage, probably we're gonna go through lots of people before we got with various specific part of that.
That allows us to really can become aggressive in terms of growth.
So so basically that.
That is there we are.
We are monitoring it closely and hopefully we'll be able to fund sooner than later.
Profitable source of growth and if not we will have to continue monitoring to see what other teachers with limited.
That's very helpful. Louise maybe a follow up on one of the comments you made more on the general outlook for Peruse economy.
He said that.
It could take some time to show recovery in investment what do you think needs to.
What happened.
For that for that to take place like what are the catalysts that could get like what what is the positive scenario for catalysts to drive investment in.
And perhaps what could be some of the concerns that makes it even worse at me and he could things what would be the downside scenarios.
Scenarios or or catalyst as well.
Sure.
Let me let me let me try to address that question, which is another and it sounds like a simple question, but he has many many bonds to ignore but I guess what needs to happen.
Captain in order for Investor confidence consumer confidence to come back is to see some stability.
In the political environment, we all know whether the macro fundamentals of Peru continued to be solid despite inflation, but because this is a.
International phenomenon.
We know that the central Bank is.
Various structural and each having lots to do in the in the Peruvian economy to make sure that the macro economy remains healthy and the minister of finance and their team are doing all the airports.
To make that possible. However, we see a lot of.
Sure.
We're very concerned about the way the.
The executive continues to.
Name people that we believe don't have the qualifications to run important parts of the government.
So there is lots of turnover lots of question either downstream create instability on the other side Congress continues to.
Bruce some measures that are very popular with that at the end that do not allow investors.
Investors to feel comfortable that we are going in the right drug from that point and in the middle of that there's a big.
Bush between the objective.
The Congress, even though we've seen.
In the latest Dave some agreement in certain points with different budgets have bolted together.
One time kind of agree are not what they have been bolted together. So does lots of noise going on around the executive bonus whatever so maybe the catalyst will be for my perspective.
Completely my perspective.
Making some changes on the change could be.
In chicken does branch with a new brand minister that in Britain.
Breached confidence on a new set of ministers that provide us confidence to the market.
Great.
The positive working relationship with college.
I think that could be a good catalyst now.
It's not happening one of the big concerns was the proposal of a new.
As a blockbuster yesterday that has been put down by Congress. However is that continues to rise. Although Noah will also be a source of concern for everybody involved.
Actually no.
<unk> has been put to bed.
That's out of question. However, it's not clear what will the next day come to us not so so again.
There's political noise.
And both the executive branch Aldi and legislative branches need to work together in order to return to a more normal stable situation.
That group.
Yeah.
Along with the good economic prospects that we have because of all the potential that the country has and.
Because of the positive cycle of commodities that should benefit.
Our country.
Thank you for the comments and really appreciate no no its a tough question.
Difficult to tell but but thank you for that.
That's it.
Youre welcome.
The next question is from Ernesto get Alonso with Bank of America. Please go ahead.
Thank you.
And what's really been and Jillian and good morning, everybody. Thanks for your presentation and for the opportunity to ask questions.
My first question is from long road.
Asset quality.
What do you think would be the level in which inflation.
Rates should start to have an impact in loan growth.
Quality.
Then my second question is on your digital transformation.
And what's been interesting for me to see your view you don't.
Strategies.
Especially I would like to queue on your new growth strategy related to payments, the Neo bank and open banking.
So just wondering if you would like to create a new ban or a specific area.
Okay, the new bank.
And I think if that is the case it would be very helpful. You can start disclosing our P&L and key performance indicators in the future.
Differ from those of a traditional bank.
And then my last question on each on your are we.
We saw your reported first quarter, our <unk> was higher than 17% and above the 16% guided up. So do you think you can maintain these little a thorough in the next quarters.
And where do you see your sustainable laterally. Thank.
Thank you.
Okay. Let me then they start the restaurant thanks very much for your question by number three then I'll move to number two and I'll leave you cannot number one.
We're gonna be rolled by worked here.
Yes, we had a strong start of the year.
We are very confident that we could continue with dose levels.
I know that our guidance is a little bit below that that we don't feel at this stage.
So not moving.
Yes. It is.
Early during the year, it's just a quarter and there's some uncertainty in front of us, especially in the front of our investments within what has been happening is that in the last couple of weeks three weeks, which has been told for the market. So I guess, we feel comfortable that the fundamentals of iff's in all their businesses are.
Stroke, we're going to face some volatility and we hope that we could continue.
This level of ROE.
And that's sustainable I think michela can correct me, but we see first.
18% plus sustainable ROA for that for the next years. So so that's the that's basically no area, but again good start over the year in a very volatile environment, which.
Good good.
<unk> had some surprises.
Quarterly reported out because of the volatility in the market. So I think we're okay with what we have right now.
But the fundamentals are building up pretty nicely.
On the second part I think we will discuss about this.
Yeah.
We won't have a new bank outside of fish.
Maybe not.
Our country is Sunday, but actually revelation in food does not allow us to have to two licenses for different banks. So everything we do we will have to do under the inter bank license umbrella and obviously as we discussed also on that can.
We will separate as much as possible the dynamics.
Value creation of each of the businesses. So far our vendors are not creating additional revenue our ventures.
Basically all of them in investment stage, there is already in some of them as you tailor made should not for instance duty with a top ups.
And with the.
Some of the features is generated revenue, but still martino.
So we.
We will create.
In the Bravo, where it is.
And rational.
Start seeing different types of natural business gives you. What however, it's early still but as soon as we see some critical mass we will be able to show that as a P&L, but one little word strongly in.
Creating a set of leading indicators that will give everybody a sense of how all of them are revolver. Today, we're more focused in the DVD wash, which is the ones that we are.
We are presenting but it is part of our vision that as this.
The venture has matured we would be.
So in as much.
Information on the Dawn I suspect that's possible too.
Be able to identify where the sources of value on where they come from.
Yeah.
We will have an investor day, and what we're gonna be very happy to have you there nobody obviously.
As a general statement, we are very happy we're very happy with.
The.
Digitalization of our.
Core interbank business itself. So much of our study as opposed to other banks that create satellite and see how those satellite.
Okay.
Grow and maybe fly away from the core we feel very comfortable that the products and services that we are creating a path to bringing many of those customers into our core Ddos interbank back and we will clearly show it in Investor day.
How that Buck discussed 20 is unacceptable bronchial I mentioned is a low cost acquisition.
Channel for the bank, which is.
Which we have ambition is as a bridge between the bank and the Unbanked to blame, but because it's the only wanted worthy unbanked and have a wallet, but receive and bay two hour plane.
And we're doing segmentation work to see which of those customers that come to <unk> can be brought into digitally into the injured band solutions and watching the interbank solutions. We can continue to grow show launch.
Thank God.
On the.
Oh <expletive> accounts, all of Italy, and have them, 100%. Indeed, a customer so strategy is a little bit the others, which are creating new values and they want to keep them.
Gov, because maybe their core is not as digitalized.
Oh, it's in our case in this is working and less customer touches upon our core digital bank.
People are very happy with higher NPA.
And maybe you can help out here we have closed.
In the last couple of years over 37% of our ritual grant of financial start of the call. I think maybe you can prove me wrong hopefully that we would have been the most aggressive banks in the region.
Rationalize branches in this way however, our revenues our number of customers on our market shares continue to be stable or to grow. So that is a testament of how efficient our coordinate utilization of our main bank.
Is evolving to serve the customers.
And then for the first part of your question and I'm, sorry that extended here and got a bunch of that intermediate levels.
Okay. Thank you literally pay high.
Hi, He is NAFTA and let me talk about a little bit of loan growth in asset quality.
First you have seen that we have closed the first quarter with I mean with high levels of growth actually taking out then react fever impact, which at the end of the day has little impact of revenues now because a lot of you are aware are very very low yields. They total loan book has grown 10% okay.
The biggest part of this growth is coming from retail and especially from say touching other personal loans not that officials have grown 41% year over year.
So basically what we have seen today is that the risk profile of our portfolio. Okay.
Feel better than pre COVID-19 levels. Okay. So even if now credit cards and other personal loans total balance are already a little above pre COVID-19 levels. The overall portfolio, we feel reactive along with a higher mortgage slows down pre COVID-19 makeup to talk about.
For your niche with lower risks and free coffee. So this is then reflecting a fewer fee in the cost of risk now, but also when we look at the retail portfolio itself and a credit card, specifically, which is the let's say the highest risk portfolio.
The risk profile of the credit card portfolio itself is also feel it much better than breakout. Okay. So of course now we have in mind.
Running many different analysis of how inflation in this heightened interest rates will at some point limit the growth that we have seen okay.
And we believe it will come in in the following months steel there are important pockets pockets of clients, where we could still grow so what we're trying to identify is okay, which pockets of clients are more let's say sensible not to this impact from inflation in either a threshold that we can maybe limit growth there that we do.
If there is still room for four important growth at least in the in the coming quarters now and then we will need to see of course, what else happens with the economy because some of the impacts that we are also expecting and that will have a positive impact in asset quality is for example, the new funds that will be released to the market shows the new <unk>.
Initial private patient function, the new release of the fifth P. F. I should we saw during last year were partially used to I mean to help clients to honor their debt. So that also now it's an extra positive impact that we might expect in the future having.
He said that.
It is true that we did record placebo of the portfolio mix not the cost of risk should gradually increase even in the in the coming months, but we feel the leaf and that will be below pre COVID-19 levels for the for the full year of this year.
So I don't know if that covers that part of the question.
He has a very very careful thank you very much.
Okay.
Thank you Anna.
The next question is from Carlos Gomez with HSBC. Please go ahead.
It's gonna look with money.
Congratulations on the results and as always congratulations on the transparency and the players connection I, particularly like how you feel different chemo alone.
And the acquisition of easy pay and I wanted to ask you about that.
First to confirm youre paying $80 million for easy pay so numbers, that's about six times.
EBITDA spread your numbers.
Please let me know if that is correct.
Can you give us an idea about the market share.
Of easy pay in the immune system.
Thank you.
Yeah, Hi.
Hi, it's yeah, you're right, it's $80 million for 50% of the company given that we already own the other 50% so now.
Today is 100% owned by ISS.
50% directly 50%.
By Internet, but at the end, we'll consolidate the whole entity in our books.
In terms of the multiple actually my number show a little bit lower than that I think it was around five times, but let me pass it onto Carlo study with our jet boats, which were banking and payments. So he can confirm decembers.
Yes, the multiple depends a lot on the on the FX you take on that dynamic if you use first quarter use X expected number for a year.
Yeah, it's somewhere around there.
80 million for 50%.
So yeah in terms of market share, which was your question there is no regulator or.
Distributors are not regulated so we don't know how much the competition processes. We have some idea because we can see within our numbers on our credit card from their tariffs, which transactions will wear which depends on that on the merchants. So we have some idea we know market share is growing.
But we don't have or we cannot disclose an exact number because it would be an extrapolation from what we see now so yeah.
That's an idea.
Oh good okay.
<unk> 20, 50% market to know what what what range should we be looking at.
It should be around 50%, 50% 55 zero yeah.
Oh, yes, yes, yes.
But a couple of words on easy pay I think.
Independently of the prize because obviously I think the transaction less actually debated by by a motivated seller.
We took on the opportunity for an asset that we have been taking for for many years, but different circumstances did not allow us to to really.
Pulling the trigger on it because there were a lot different interests interest, but now as you know the scotiabank rationalizing their book.
Position that I'm in Peru, but in Latin America. So we took this opportunity I think that strategically this creates a tremendous platform for our payments strategy I think it can accelerate many of the vision that we have in lots of competitors in the region.
The country are starting to build some efforts in order to be able to have this kind of asset in their scope.
This with the <unk>.
Traction at half that platform in pad size, it pass and our connection with existing customers. It has because it has a very good set of customers and relationships.
Really.
It makes us feel that we do have.
Something that will definitely accelerate but boost our vision of becoming the most important manager of a payment ecosystem in the country.
So that those are the main marriage of this protection for us.
Thank you and the selling partner is you mentioned scotiabank anybody else.
No this western asset owned 50% by interbank at 50% basically.
That's very clear thank you so much.
Youre welcome.
The next question is from Daniel Mora with credit core capital. Please go ahead.
Okay.
Hi, Good morning, everyone and thank you for the presentation I have two questions. The first one is regarding Nemo.
I would like to know what percentage of the loan portfolio or if you want to explain it by segment.
Yes, we are free.
Though as with floating rates I would like to understand with the increase of the of the central Bank rate.
Which segment of the portfolio as well.
Reprice with the increase of the of these rates and also I would like to understand.
What is your base case scenario for the need to return to two brick pandemic levels. Considering also the higher increase in credit cards on the and the increase in the loan mix of retail lunch I know that this is something burden certain Jordan, our lives and views on a regular basis, but I would like to.
Understand what is the base case scenario.
And the second question is regarding cost of risk I would like also to know.
When do you expect that we can see our cost of risk also more aligned to the to the historical levels of artifice.
These question is mainly too to understand if 2023 the next year.
Could be considered still a transitory year or it will be more aligned to prevent them at levels. Thank you so much.
Okay, well, thanks very much for Neal for you for your question on this but let me pass it onto a meter would probably have more of the details that you undertook.
Good morning, Danielle and thank you for the question, let me start with a NIM and the portions of the portfolio that have flowed right.
Maybe let me put the answer in a different way because what actually is going on is that we are in let's say trends.
Asking some of the increases in rates two different products in the portfolio. Okay. So basically a retail now so let's talk about consumer financing so credit cards personal loans payroll deductible loans from the public sector employees, we have been increasing the rates in the new deal.
There.
So a portion of the increase in the interest and in the loan yields that you see is coming from that together of course with the change in mix.
When you look at the new rates in the new disbursement that they are clearly above.
Obviously, it is a little bit more difficult in.
Mortgage if okay, which also have a fixed rate, but even there we have started to a race and rates in the new dish doesn't it a little bit more difficult dance and train because of competition.
That's the problem that has if you want in the in the past month and increase the rate.
Now, we're moving to the commercial.
Loan book, and if a little bit the same now so basically there you price it based on spreads so basically not as a cost of funds increase if you start to price your loans to your clients also in that way and then there is a niche where it is not based on spreads, but it gets more like like retail even there.
We have started to grow nicely in this first quarter, but this growth is coming with higher disbursement right. So I mean, I would say that when talking about new disbursement like almost all products are increasing rates of course, you see different impacts in the <unk>.
The average yields of the portfolio because of the duration of the different products and also the impact in India higher duration proud of is going to be smaller, but it will come in in time, Inc.
And complementing the spot with the base case scenario for for NIM, I mean, do we can see and I'm not comparing to pre COVID-19 levels. Because there are a number of things that I'm not sure whether or not will be exactly the same in 2023.
In in this relates also to the cost of risk.
But what we are seeing now is that for the next three quarters now and up until year end.
And I'm talking specifically about interbank now NIM will gradually improve quarter by quarter and again. This improvement is coming from portfolio mix, but also the yield of each product because of what I. Just explained how we are transferring attrition rates too to our new disbursement and also.
No I know, where you see them shown on reactive along so I really don't know where we are like updating the they the numbers, but I can imagine that in 'twenty, two and three at some point, we should be in in means hopefully if not being a strong changes hopefully above.
<unk>, 5% and in terms of cost of risk it is a little bit aligned because it depends on the person.
This year from the numbers we are seeing.
We are guiding that the cost of risk will be still below pre COVID-19 now and again there are a number of external factors like this.
New measures from private facial passes that will inject liquidity today to the system that improves this cost of risk so.
<unk> hundred 20 fleet, whether or not that's going to be already at pre COVID-19 levels sort of a transition year will actually depend on how we close the year I mean, what I know for sure is that cost of risk of 2023 will be much higher than 22, it will for sure not because of the Max how do you say D.
Attunity of this portfolio retail that has been growing very fastly.
In the past month.
I cannot.
I'm not completely sure whether or not it will come back to the levels of free college, which were not between two to $2 five cost of risk no pre commercial state is still a way to go here.
So let me know if this covers your questions.
Perfect. Thank you so much it's very clear very clear rule dividends.
Hey, guys. Thank you.
Excuse me. The next question is from Alonso Aramburu with BTG Pactual. Please go ahead.
Yes, hi, good morning, and thank you for it.
Nicole.
I wanted to follow up on the NIM and.
The press release, you mentioned that you had slightly more rapidly.
I'm thinking to the previous quarter. So I'm just wondering you mentioned that you're increasing your disbursements Rachel newness freshmen.
So what happened between fourth quarter and this quarter are you seeing more competition.
Just maybe some color on maybe youre going to less risky clients and I'm thinking a little bit the yield on consumer lending.
So that that on the NIM I'm on my second question is on commercial lending.
Which was relatively weak this quarter and just wondering if you can give us some color is it just overall private investment in the economy, but it's affecting the commercial segment or there's something else is the liquidity of the company. So why what are you seeing there. Thank you.
Go ahead.
Good morning, Alonso. Thank you for the question.
Help me understand that the first question you are talking about the evolution from fourth quarter to first quarter of NIM of Iff's, it's not right.
Of each of our own.
Yeah.
Nate.
This reduced you mentioned that the average rate on loans was stable quarter on quarter and and the mix help.
But there was slightly lower across the board right.
Wondering what is it.
Yeah, Yeah, Okay. Let me explain what is happening what is happening there I mean, when we when you look at the average rate of each single product ete's, increasing okay and Theyre Ifr. If we have this additional effects that are coming I don't know if you remember that we had.
Some impediments from their reschedule needs that we did.
Last year, Okay that continues to have an impact which sometimes it's positive sometimes it's nate. So this particular domestic what you are seeing there hasn't like an extraordinary impact that makes the rates flat, but that should not be the case going forward I mean, each single product is increasing its average.
Yeah, Okay and in going I mean, moving to the commercial lending a decrease there are couple of things to comment there I mean first factiva, Norway. When I mean, we actually look at data and the growth both with and without directly that because at the end of the day now that the balances that are going.
<unk>.
And down from you that as I mentioned before have very low yield and also we are very much focused that they launched from commercial banking without dragging that I'll go in and actually they are growing very nicely in the first quarter. There was I mean, a lot of competition to be sits here in the large corporate wide because of that.
Number of increases in rates, Okay that we were trying to as to clients about the market dynamics. We're not allowed to do that now. So you know that from time to time and you have always seen this in the past year.
We always and focus on profitability and also if we think big transactions with low or negative yields we will not and therefore, we saw a decrease in market share in the first quarter in the large corporate segment that that has changed and has improved a lot in actually in APE.
Well no because rates continue to increase we have seen the overall market dynamics to be more on the front of racing rates also for for the large corporate segment that is not the case for example, as I was mentioning for the SME Sme's a complete different picture there we are growing.
And.
And actually we will start to show modest improvements in market share and we are also being able to translate the increasing rates with no province, so going forward I mean, yes. It is true that investments are not happening. So medium term financing is not something that is booming.
Now there are certain sectors in which we are very strong efforts.
The agri export.
Segment, which is growing very nicely in Peru, and also we are focusing now are trained.
Trying to grow profitably now in large corporate and midsize companies and Smes in dose.
<unk> segments, which are kind of not following their GDP and evolution in the country.
Yes.
Sort of a linear at something I think we've mentioned this before but.
In specialty incorporate in mortgages and those those businesses are very sensitive to rates. We will continue to be very disciplined in terms of ration.
And again mentioned as we've always mentioned, we're not obsessed by chase.
Market shares were very focused on profitability and we've seen this quarter crazy things happened in the corporate.
Segment, where.
Some of our customers were receiving.
Loans with rate that did not make sense and we just let them pass and we will continue to do so.
We do know that the end since we'll come into action.
The right fashion will be able to be achieved in these market. So so we were not playing there.
The size or the market share game, we're playing the profitability gain to strengthen our relationship with our customers. So so sometimes we will.
Sacrifice market share.
Against the profitability in this quarter was the clear itself.
Thank you and let them together that's great color. Thank you.
Thank you Alan.
At this time I'd like to turn the call over to Raphael bore Hough for webcast questions. Please go ahead.
Thank you Sir.
We have one question from Stacy Shea from 91.
Can you please give us more details on the decline quarter over quarter in taught out of deposits.
Sure.
Go back with essence.
Yes.
Hi.
Hello, and let me tell you a little bit of what's been going on because we haven't discussed a lot about deposits and liquidity I mean first I think it is important to have in mind that as of March our loan to deposit ratio stands at 99%, which is still below the 106.
The system, Okay, and it is actually still below the pre COVID-19 level, Okay. I mean, our loan to deposit ratio, but also the system loan to deposit ratio pre COVID-19 was usually a little above 100%. So we you would see numbers for interbank at around 100, and 304% what's happened with.
Bobby is that there was an.
A extra liquidity in the overall system coming from a number of measures not so we had a 60 million celestial frac. The well we had all the private pension fund flows coming into the system, but also they they shipped yet so we've been leaving let's say at the system level with extra liquidity a bit.
None of what what insight okay. So last year and actually there is a number of a slide in our presentation nightmare for the one where you can see that the the loan to deposit ratio of internal back one year ago as of March 21, What's actually 18, 9% now so we weren't very happy because we were very liquid but of course.
That had a cost so what has happened in this first quarter. Okay. The most important change in why you see in the volumes going down is that that liquidity at system level has started to disappear because again all of those flows have this have been started.
To be used in active of loans have been repaid so central bank has taken out that that liquidity in and what we've been trying to do is given the increase in rates is to optimize cost of funds. Okay. So basically we have been letting some are high cost institutional.
Not to go away.
So that we can limit the impact of the increasing rates in our short term.
Deposit so basically going for what it is possible that this trend that we have seen in the in our system will continue to take place, but there is this uncertainty that with the new measures that.
Could be a proof of our in the process of being a provision approving a proof of extra pay private pension funds and exon 50 has come into the market, maybe not that will normalize a little bit, but we do expect no loan to deposit ratio I mean to continue to tighten into go to more normalized pre COVID-19 levels.
In the following quarters.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Mrs. Casassa for any closing remarks.
Okay. Thank you very much. Thank you everybody again for attending this first quarter as a result, and we hope to see you all on June 22nd on our first virtual Investor Day, Please don't mistake.
Yes.
Hi, everyone.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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Okay.
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