Q2 2022 Credicorp Ltd Earnings Call
Good morning, everyone I would like to welcome all of you to the credit Corp Limited second quarter 2022 conference call.
Slide presentation will accompany today's webcast, which is available in the investors section pretty corp's website.
Today's conference call is being recorded.
As a reminder, all participants will be in a listen only mode.
There will be an opportunity for you to ask questions at the end of todays presentation.
I would like to ask a question. Please signal by pressing Star then one on your telephone keypad.
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Now it is my pleasure to turn the conference over to critical eye Aro <unk> you may begin.
Thank you and good morning, everyone.
On today's call will be canceled here Ronny, our chief Executive Officer, and say somebody else, our Chief Financial Officer.
Dissipating in the Q&A session.
Tobey. Thank you Scott Russell Chief Information Officer, Ryan <unk>, Chief Risk Officer D. I hope I made them head up Universal banking and say somebody they don't hate up insurance and pension.
Before we proceed I would like to make the following safe Harbor statement.
Todays call will contain forward looking statements, which are based on management's current expectations and beliefs.
Subject to a number of risks and uncertainties.
I refer you to the forward looking statements section of our earnings release and recent filings with the S E T.
We assume no obligation to update or revise any forward looking statements to reflect new or changed events or circumstances.
Young fans will somebody will start the call discussing our strategic initiatives.
So all of them by say somebody else, who will comment on the macro environment in which we work our financial performance and provide an update on our outlook for 2022.
Yeah I'm trying to please go ahead. Thank.
Thank you.
Good morning, everyone. Thank you for joining US today, please turn to slide three of our earnings presentation.
During the quarter, we continued to advance on the execution of our strategic initiatives our growth our operations, increasing digital customers in our base.
On financial inclusion.
We delivered another set of robust financial results and close the quarter with a solid balance sheet, while maintaining healthy asset quality. So far will discuss this in more detail shortly.
Importantly, we are well positioned to leverage additional opportunities even as we navigate the current challenging geopolitical environment.
Before I turn to discussing the specific area.
Our focus are great.
Electrical meant on the context in which we're operating particularly in Peru.
Rather the investment is expected to decline this year with a lot of meaningful public investment our country is underperforming.
Unfortunately, we have been spending too much time discussing the political turmoil and not enough on addressing those matters that will truly make a difference to the wellbeing of our fellow citizens and the long term health of our economy.
The country requires some priorities.
Specialty the executive branch.
I'd direct you to the airports are promoting political stability.
In order to assure a private investment as well as to efficiently execute the public budget with a goal of securing better pumping services for <unk>.
Okay, nothing short term measures with damaging inflationary consequences.
The private sector is doing what it's done and we upgraded core I'm committed to doing our part.
But we certainly need the government to stay at all it's execution capabilities, our gross fundamental areas.
Safeguards are used to push all framework to accelerate potential growth.
I'd like now to review, how grade corporate bonds out and give context on how we are consolidating and strengthening our core business.
While advancing our strategy of building our own disruptive.
Now please turn to slide four.
Over the years, we have built a healthy profitable and resilient franchise with the ability to perform well even in this environment.
Our strongly we'd be on World Cup utilize balance sheet together with our laser focus on risk management and asset quality underpinned our position we've been very successful in attracting top notch talent across the board, including those with strong pick up ability through offering an attractive value.
Proposition.
As we look ahead, we will continue pushing on this agenda of attracting and retaining more digitally did you not.
It's really focused on it to support our aggressive plans for strengthening not only great gorgeous position as market leader, but also the situation for all the stakeholders in the countries in which we operate.
Finally, I would like to note that as a management team, we brought with agility and flexibility would you, particularly important considering how the environment has changed and how our vision for the future is evolving.
As such we're continuously reviewing our entire business broken folio without a strategic long term view.
Well, we have no specific news at this point it is important to note that we are guided by our goal of strengthening our leadership position and operating a top player in each of our chosen markets and segments. Please turn to slide five.
Today, we're fully committed to further consolidating our operations and driving technology technological innovation, our growth our core business portfolio.
In Universal banking, our focus is to strengthen our leadership in Peru, while focusing on markets, where we can hold a leading position.
Leveraging our world class Micro finance model, we expect to maintain our leadership position in Peru on birds eye, the consolidation of our breakfast in Colombia.
On the insurance from the goal is to further expand our leading bancassurance channel, while our investment banking and wealth management and business, where currently reassessing, our midterm study given the changing environment.
Yes.
Simultaneously, we're leveraging our parenting advantage and house, our overall operations.
Key areas of focus include attracting and retaining top notch talent.
Ignore it.
Ensuring that the sustained adoption of best in class do you talk about them.
Introducing our robust risk management capabilities, our gross businesses, while continuously to indeed integrate E D. At the core of our each of our lines of businesses.
All of these underscored by order of priority of maintaining solid policy and strong capital efficient while driving profitable growth.
Turning to slide six.
Complementing our current business portfolio, we're also selective.
Pursuing disrupted.
ROE opportunities our growth our growth three distinct or rifles oversight.
First of all right hand comprises strengthening our core profit pools.
We've already established some very attractive adventurous on this front in Peru, and Chile, I think gardening specific investment. This includes yuppie payments temple in the Neo bank space Corky in acquiring and others around services or SME.
The cyclical or iphones comprises and entering new vertical markets in Peru, and Dr. Jeffrey John where for example, we're true escalating D var in wealth tick, which already has a presence in Colombia, Chile and Peru.
I'm currently exploring insured.
And finally, our third of our iPhone consist of exploring the most of the disruptive technologies at the neighbor of new business models.
We've determined on additional forward disruptive portfolio that that could impact our expected are we in up to a 150 basis points. This year.
We're funding our commitment through external sources and are more than willing to sacrifice short term Roe to benefit their strategic sustainability of great businesses.
In line with this we will be actively monitoring and measuring the success of the innovation portfolio based on three complementary.
<unk>.
We are building.
Those ensuring efficiency on diversification of our portfolio, thus contributing to grade corporates are really cool and dose securing financial performance.
Please turn to slide seven.
As shown on slide five during the quarter, we are creating new milestones that reflect our airports to become a sustainable business leaders.
On the environmental front, we focus on developing sustainable solutions for our clients, including BCBS issuance of the first internationally green bonds.
In the banking system.
Advancing on the year's REIT ESG risk management framework with completed the filing of a green taxonomy for a representative sample of our loan.
Which we will be extended to all portfolio soon.
This is a key enabler to find more sustainable finance opportunity.
On the social front, we continued to support mine life.
On financial education through several of our businesses yuppie reached a milestone this quarter registering over $1 9 million financially in good individuals' since November of 'twenty planning.
<unk> our view.
If lending bogs nationally into.
More than 6000 people over the past seven years.
Our financial Education initiative, it'll BCP and the basketball reached over 140000 beneficiaries in this quarter.
On the SME front, yeah, well be basketball spirituals maritime ecosystem continued assistant and their partners with digital tools and managing and growing their business.
Finally, we recently published our policies on corporate sustainability human rights and corporate responsible investment which are available available.
Right now.
Now, let me turn to the Goalposts are real who will provide a brief overview of how our braking and financial performance for the quarter.
Please go ahead.
Thanks, Joe Frankel and good morning, everyone actually on Franklin mentioned, we delivered solid operational and financial results I want to start by highlighting some key quarter over quarter dynamics working any structural loans grew six 8% driven by BCP Omni bank, we decrease our liquid assets to fund their formation.
Loan growth regarding the policy.
I asked me greatly to how you're using the proceeds to take advantage of rising rates in terms of asset quality. The structurally NPL ratio dropped to point to four 9% driven by strong origination levels, while the structural cost of risk rose, one, 1%, reflecting a less favorable macroeconomic all.
Yeah.
From a year over year perspective volumes for restructured loans and low closely policy, it's colo different trajectories when a structurally loan volumes were up 14.1% low cost deposit volumes were down six 1% and represented 56, 7% of the funding base Indeed.
Scenario core income, including net interest income fees and gains on FX transactions reduced very strong growth of 18, 7% six 7% and 12 point.
8% respectively.
Prudent risk management during the pandemic at this stage that allowed us to keep Korean provision expenses under control. Despite today's challenging environment. We continue to maintain health care structurally allowances for loan losses equivalent to five 9% of its truck total loans I know what Colby.
Living for a structurally nonperforming loans stands at 120%, Indeed, SRAM business the loss ratio fell more than 37 for the same points, which indicates that the business is on track to recovery in profitability.
Summary credit Corp. Consolidated these recovery this quarter and on the back of the banking and insurance businesses secure in a row of 16, 9%, while maintaining a sound capital base.
Next slide please.
Yeah.
At the end of July I am as good as global growth forecasts are central bank around the war tightened monetary policies to come back the highest inflation levels in a decade. This is scenario was exacerbated by the war in Ukraine and persistent lockdowns in China.
Like many central banks around the Central Bank in Peru has been decisive in controlling inflation expectation Haas Rice's reference rates.
Tighter monetary policy, coupled with reactive loans amortization, you saw affecting the liquidity in the Peruvian financial system. The.
The Peruvian economy has remained resilient despite high inflation, a tight monetary policy at 25% dropping corporate prices seen the end of the first cohort that we maintain or forecast that Peru, GDP will grow around two 5%. This year. Additionally, Columbia and Chile, I would expect it to grow six.
5% and 2% this year.
Next slide please.
In Peru the <unk>.
You didn't raise in July 28 contain no new material announcements.
It's important to note that these hydrates touch upon no new measures to promote investment and economic road neither briskly.
Brisket and Christie did not safe, it's prime Minister resignation last week, and reshuffling Bskyb need to implement six changes global new appointed as the New Finance Minister He's an experienced economists who previously served as minister of production in the preceding with Gen. Two miler IMS Deputy Minister of finance in the preceding.
Hundreds of lasers on.
On the Legislative front they'd say no.
Book to Bill is stipulate that the minimum pension in the private system must be equivalent to the value of the basic conception basket. This bill food. It allows affiliates to withdraw from data accounts any amount in excess of the balance required to obtain such minimum pension. When this will always publish the executive has 90.
Calendar days to poverty sheets regulation. This legislation will trigger a material levels of additional pension fund withdrawals, but given the lack of clarity on key aspects, we need to wait for data in relation to build assets potentially inbox.
On the regulatory front the sacred <unk> is implementing a more REIT label legal framework by prohibiting the outsourcing of activities that are part of the core business of our company operations and by expanding the scope of recent four week, when you kind of strike, which could disrupt business operation in some sectors.
With respect to Columbia, and Chile, both face important milestones in the near future in Columbia, Who's traveled Pedro to golf as last Sunday and his minister of Finance announced the proposal for the new tax reform that seeks to eliminate the exception for companies in high income individuals and to increased taxes on dividends and copied.
Got it.
In Chile, it referendum will be held on September 4th to approve or reject the new constitution. So far of the policy slightly favored the prediction of the aforementioned constitution. Additionally, a new tax reform is being debated.
Next slide please.
DCP continues to reduce its trump profitability regarding key quarter over quarter and dynamic nature interest income role west feeling by your not peaking a structurally loans, mainly due to the SME corporate and consumer segments.
Context of rising interest rates. This was partially offset by an increase in the cost of funds at their low cost. They pulse is contracted in line with market trends regarding asset quality NPL volumes increase within expectations and provision expenses grew 48, 2% driven by credit cards and consumer loans reflect.
Ah you're unusually low base last quarter on a year over year basis, [noise] grocery knitting, what is reading by a 22% increase in net interest income, which was bolstered by rising interest rates and 15, 3% increasing as truck total loans measured in average daily balances.
<unk> was mainly driven by wholesale banking, we froze 16, 3% due to an uptick in disbursements with working capital loans in foreign currency to corporate clients, many of which had in the second quarter of 2021 prepaid financial secured during the pandemic.
Retail banking is structurally loans expanded 14% year over year, driven by SME P me, where we were penetrating new lower ticket sub segments by living riding that analytics, Andy that China's Additionally fee income increased 14, 1% fueled by an uptick in transactional living in particular.
Two P O S transactions and interbank transfers.
Loan provisions decreased 22, 9% driven by an improvement in payment behavior in the mortgage and corporate banking segment operating expenses grew 16% driven by higher expenses for <unk> T to bolster its transaction capacities are not peaking transaction I'll call. It for the loyalty program benefits.
Accumulated too crazy car use growth in variable compensation, driven by true passing business targets and more investment in disruptive initiatives in this context BCP efficiency ratio stood at 41, 5% in a row.
<unk> 22.8.
8% this quarter next slide please.
By focusing on achieving these three main ambitions yup, he's advancing its going to become peruse most important super app with more than 10 million users yuppies, becoming the main payment network in Peru.
Approximately 6 million users are categorized as monthly active users in these affiliates make when are they rush 15 transactions per month total transactions amounted to 5 billion solids in June . In addition, since the launch of mobile top ups in November 2021, yeah.
<unk> has achieved a market share of 8% approximately and reduced it more than one 4 million top ups in June .
Yeah.
Developing new functionality to leave our footprint in users' daily lives. Most recently, we have been operating a freight some family B pilots of Yep, Your Florida functionality to offer a feel its unique promotions and discounts we expect to launch. This feature this quarter also you have been.
<unk> operating a friends and family pilot for the new micro loans functionality, we expect to launch in this quarter for the first stage of this new service yuppie estimates that he can liberate us $1 3 million leads to potential borrowers to place loans between 102 hundred soldiers.
That can be paid in 15 2025 or 30 days next slide please.
<unk> revenues grew 24, 3% quarter over quarter, our hybrid model base centralized assessments and alternative distribution channels set a new high for loan disbursement. The lid is structurally loans to reduce the debt.
Seven 9%.
This dynamic coupled with active yield management strategies allow me bank to boost net interest income this quarter. This truck total NPL ratio fell and institute a six 1% the cost of risk also fail and institute a three 3% from a year over year perspective.
Net interest income reduced their solid growth driven by <unk>.
0.3% growth in the structural loans and by a yield increase through effective pricing strategies.
These dynamics were partially offset by an uptick in the coastal funds mutual interest rate hikes or that Ingalls was up more than twofold fueled by growth in bancassurance sales and by the fact that commissions paid to commercial partners have reduced it a steady decline as our own Chinese gained relevance.
Provision expenses fell at 15, 2% due to an improvement in climbing client payment performance Road King operating income outstripping the spansion reduce their total operating expenses, which stood at six 9% in this context me bank cost efficiency ratio improve unused for tunnel Avalanche <unk>.
Equity rebounded significantly to stand at 23% of me Banco Columbia year over year results were driven by 14% growth in net interest income, which was attributable to a strong loan growth are called tiny by an uptick in productivity.
NIM evolution continued to be challenging due to funding cost pressures.
Next slide please.
Grupo Pacific loss net income rose quarter over quarter, driven by an uptick in net earning premiums in the P&C business and by favorable investment results in the life business. It is relevant to mention that this environment has negatively impacted our equity level through unrealized.
From a year over year perspective in the P&C business net earned premiums increased primarily due to growing cells of car protection on household mortgage pros onto an uptick in sales of oncological problems P&C claims rose year over year driven by growth in claims through the Cogs line.
The pandemic restrictions were lifted in the life business net earning premiums increased primarily to credit life, which reduced the rate growth in service be it BCP omnibank. This positive dynamic was poorly.
Trumping claimed do it there.
And improving in the sanitary situations.
These dynamics led to total loss ratio to situate at 78%, which is stance closer to pre pandemic levels. All in all group of Pacific with return on equity stood at 18, 6%.
Next slide please.
The best way banking wealth management line of business continues to be challenged by the current environment, where geopolitical issues and macroeconomic downturn has impacted asset prices market volatility I know, they're all confidence this context combined with political noise in various countries in the region negatively impacted our <unk>.
Net revenues.
Assets under management and appropriate target portfolios on a quarter over quarter basis total assets under management fell 10% and income generation dropped, 8%, which was primarily fueled by capital markets, where our fixed income trading has tried to use performing unfavorable them by and due to asset.
Management, which was affected by a decrease in total management fees related to lower market value of funds in the year over year analysis assets under management dropped, 11%, which was primarily driven by a decrease in funds volumes in Peru, and Chile within the asset management business in this context.
Income fell 31% this evolution is attributable to capital markets.
Asset management and wealth management businesses.
The decline was fueled by a decrease in trading income while in asset and wealth management businesses reductions were mainly attributable to withdrawals a decrease in the market value of funds and a base effect given that in the second quarter of 2021 strong gains were reported for anticipated redemption until.
Part of the upfront piece two offshore platforms, we continue to develop capabilities, while we conduct a thorough analysis of our business focus.
Context marked by reduced volumes hanging scalability challenges in the short to medium term.
Next slide please.
Now, we will talk about credit core consolidated dynamics.
Quarter over quarter basis interest, earning assets reflected that trumping cash and due from banks and in investments, but reduced the growth in our structural logs. These dynamics resulted in a higher yield mix on the funding side low cost deposits contracted while time deposits grew accordingly, the yields on our interest earning us.
<unk> increased 68 basis points, while the funding costs increased 26 basis points on a year over year basis credit quarter structurally loans portfolio grew 14% year over year, driven by BCP on Mi band wide reactive alone investment in cash and due from banks materially.
Contracted on the liability side total funding contracted drilling primarily but reactive about variables and total deposits. Additionally, our deposit base became more expensive even that low cost deposit volumes fare alongside growth in time deposits, our cotton in around 57% of our funds.
<unk> base was comprised of low cost deposits.
Relevant competitive advantage that helps to keep our costs down.
These dynamics, coupled with effective asset repricing of strategy lit the interest, earning asset yields to increase 122 basis points. The cost of funding rose 41 basis points next slide please.
Now I will speak about Korean growing year over year evolution core income grew 15% year over year, which was driven by net interest income and fee income credit Gordon net interest income rose 18, 7% year over year in line with the evolution of our balance sheet and yield dynamics explained earlier this quarter.
Afflicted in our net interest margin, which grew eight basis points year over year and stood at four 9%. This quarter wireless structurally NIM stood at $5 18 per se. This knee upkeep, coupled with a decrease in cost of risk drove the evolution of Risa jested knee, which has stood.
A 425% this quarter very close to pre pandemic levels.
King Kong increased six 7% driven by consumption and in turn bank transaction, which grew 64, 3% and 51, 3% respectively.
Cashless transactions represented 43% of total transactions amount as of June .
13, 8% increase in banking service fees was partially offset by a drop in fee income.
Yes.
Net gains on FX transactions increased 12, 8% year over year in a context marked by higher FX volatility, where we leveraged our pricing and distribution capabilities next slide please.
I will now move to credit Corp, structurally low quality dynamics.
On a quarter over quarter basis, our NPL volumes reduced it an uptick.
Which was mainly attributable to BCP and leaving by the SME, our wholesale segments SME the increasing npls was concentrated in the early delinquency trends tranches and drilling by SME PMA clients that also have reactive alone and we're unable to service both depths he moves tenuously.
Moreover, as we mentioned in the last quarter SME Npls volumes are impacted by lower levels of write offs of reactive related clients, which we expect to regular rise in the third award in wholesale banking delinquency is associated with this specific client from the real estate and two recent sectors in the middle.
Market segment higher delinquency is within expectations as it is related to clients affected by the pandemic that benefited from reprogramming facilities, and which are already provisioned NPL volumes uptick at BCP was partially offset by Npls declined and me bank due to an improvement.
Client payment behavior.
Year over year higher NPL volumes were mainly driven by BCP and BCP, Bolivia at BCP higher Npls.
She must mostly due to SME <unk> driven by a slight increase in delinquency of long term loans at BCP, Bolivia increase in overdue loans was in line with expectations.
Given by Grace periods explorations. This was attenuated by a decrease in delinquency I'd make bank.
Structurally loans grew at a faster pace than NPL volumes, leading NPL ratio to drop across segments. In this context credit cards are structurally the NPA ratio has stood at four 9% asset levels stand we deemed our expectations. Nonetheless, we are closely monitoring increasing early.
Delinquency indicators next slide please.
The increase reduced in a structurally loan loss provisions remained within our expectations on a quarter over quarter basis grow in structurally provisions, one mainly driven by individual segments at BCP, where the macroeconomic outlook impacted our very small those on a year over year basis, a structurally provision.
Spaces remaining stable.
We take a prudent approach to updating our model, which currently reflects a less favorable outlook, while macroeconomic indicators such as GDP inflation internal demand exchange rates and interest rates. Additionally, the results reflect the gradual shift to retail the aforementioned dynamics were partially offset.
<unk> positive payment behavior.
As a result, the cost of risk is too high.
<unk> 97 per cent were higher expenses were offset by loan growth.
The cumulative level the cost of risk stands at zero point, 83%. The coverage ratio continued to trend back to pre pandemic levels stand at 120 per cent for structural loans next slide please.
Operating expenses grew 14, 3% year over year, which reflected an increasing administrative expenses and in salaries and employee benefits growth in administrative expenses reflects an increase in the transactional costs in line with higher transactional levels and that peak in <unk> expenses.
Related to cyber security functionality single, what ops software and cloud operates and the acceleration on the fruit definition the salary line Whatsapp this quarter due to an increase in variable compensation, which reflect levels of commercial and profit targets accomplishments in this context credit cards.
The efficiency ratio deteriorated 60 basis points in the first half of the year. Thanks to its hybrid model Mi band costs operating expenses were control not only eight 1% year over year operating income was up 19, 3% over the same period Banco sufficiency ratio improve.
520 basis points year over year, and 700 basis points in the first semester of this year.
If we exclude opex for investment in disruptive initiatives, such as <unk> criollo. The efficiency ratio stands at 41, 8% this quarter, which represents a difference of 280 basis points for the reported figure.
Next slide please.
Roy stance.
16, 9% this quarter driven primarily by the performance of our Universal banking micro finance and insurance businesses over the last four quarters. Our OE has consolidated in the high teens finally, our ROE for the first half of the year has stood at 717, 2%.
Now I will move onto the outlook.
Next slide please despite current political volatility peruse macro fundamentals remain solid and we expect GDP growth to stand within guidance at around two 5% a strong dynamism in Milan SME premium consumer loans is expected to continue as such we expect the structure.
Total loans growth to be within guidance at year end, given the interest rate continued to increase at a faster pace.
The net interest margin will expand in the upper range of guidance at the end of 2022.
The information that we have as of today the cost of risk is also expected to close the year in the upper end of guidance asset quality has evolved within our expectations, but nonetheless, we are carefully monitoring the impact of higher inflation in our climate science payment performance and the risk profile.
Section levels rise in our <unk> and digital investment increased efficiency ratio will move upward. Nonetheless, we expect this ratio to close the year within guidance. Finally, we expect our overall Roe.
For Q2.
Two to remain without guidance with these comments I would like to start the Q&A session.
Thank you we will now begin the Q&A session.
We would like to ask a question. Please press Star then one on your telephone keypad.
Connected to the call.
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We will pause for just a moment to allow everyone. The opportunity for questions. We also ask that you. Please only ask one question at a time. After each question has been addressed by our speakers who will then be allowed to ask as many follow ups as needed.
Again, please only ask one question at a time.
Thank you.
And our first question will be from Ernesto <unk> from Bank of America. Please go ahead.
Hi, Good morning, Vern Frankel on Kirker earn good morning, calling a game on a thank you for your question.
My first question is gardening occurring framework.
I would like.
We're continuing to have some color on the new regulation.
Hi.
Oh, great good krogers, Oklahoma longer $2400.
And also I would like to have or Hudson pressures from holiday impact.
I'll go out her braemar.
Uh huh.
Thank you.
Okay.
<unk>.
Yeah. Good morning, I spoke with future Franco Thank you for your question.
They're there.
The original proposal as you just mentioned is one of the I want to qualify the initiative, but one of.
The hundreds of.
The regulatory initiatives, starting with Congress as of today, there's nothing.
That proposal has not gained broad whatsoever.
Regard regarding personal sorry about that.
Regarding special the law was bought.
Our Congress.
However.
We do not have the answer for that.
Isn't been published having said that we're going to be working and how to tackle.
The new regulation on but more importantly, I would say that actually I have been saying this for the last maybe.
Couple of the.
The last couple of calls I mean, maybe this is what we as Craig called out much more worried about them all.
Facial system, rather than the specific regulation or the impact on prima.
What has been going on for the last maybe two or three years is that.
Pension fund system in Peru has been.
Constantly perforated and therefore damaged.
I strongly believe this is a personal opinion, but theres no personal fun, that's all potential system anymore reboot.
For us it's much more relevant.
How about Oh.
Hmm.
For Mueller and intelligent discussion with all the stakeholders in order to come up with how much more.
Solid pension fund system based on system sorry.
The future otherwise if we think that we have.
An issue regarding the special funds today.
We will have as a country I mean, we'll have a much more complicated situations in the future.
Perfect. Thank you just a last question on the anger appointing huh.
We saw her grown Robert Green per song.
Copper gur.
Hum.
Hum Hallmark Parkman granola claims around how much we loved to aflac.
How much.
Hum for marathon.
Mhm collateral that we have.
Called the rock here.
I'm looking for next year.
Would it be with the novel.
Craig.
A more moderate growth in opex.
There's nothing new I forgotten, yes.
As I mentioned during the the.
The presentation of the speech I think we have been very specific drivers of the significant growth has been related to transactional levels.
And also and accelerating in the transformational initiatives.
The <unk> expenses.
Part of the this effect has been driven by inflation also.
It takes expenses, but I will say that mainly is driven by intentional accelerating in the transformation.
Down the road, we expect a moderation.
In these expenses growth, but what we are going to monitor it as we mentioned previously is in a sound.
Cost to income ratio as the income.
He follows hard how we can drive income higher we are going to maintain in a fast investment base.
Perfect. Thank you very much.
Thank you and the next question will be from Jason Mullen from Scotiabank. Please go ahead.
Hello, everyone and congrats on the solid profitability, despite the challenging economic and geopolitical context.
Jim Franco and say so thanks for your presentation and the opportunity to ask questions I'm going to only ask one question as you requested.
Minus related to me bound call. We saw me banquo, the micro finance subsidiary generate.
An improved level of our return on equity, reaching 20% can you talk about the addressable market for this segment.
The competition and be banquo's market position now and going forward. Thank you.
Good morning, Jason.
Oh, okay.
The total of brittle market.
For me Bancorp, Pedro and then that'll go slightly into into Colombia.
We believe it's Tim.
Still a big opportunity.
Because the debt.
Level of Unbanked potential clients is still large there and as you know we had me back about half of our goal in terms of financial inclusion on bringing new customers to the financial system through these really tie any of those.
I think to your first actually first of all.
Sub question is that.
We still see an opportunity for a large and the buy in that segment regarding competition.
It's a tricky question.
The golf club at a lot of.
This will bring tendency provided or allowed a.
Banking institutional financial institutions that got how many municipalities on phone to relax, they're great standards grade provisionally and capital requirements and things like that and therefore is still not very clear how.
Strong or weak or competitors regarding that matter.
From what we see in the market is that.
The risk appetite is not.
Strong as it was before and at the bank of what we're doing we are currently doing this.
And leveraging on the data we have is targeting those really good risk clients for awhile.
Those are things, we don't see them as aggressively as before I'm, sorry, I missed your last question the third one sorry.
Okay.
Well those two okay.
And maybe the the third comment is.
Both regarding Peru, and Colombia.
This hybrid model, which we've talked about.
Previously is performing quite well, we're further developing and implementing it.
At the name uncle, Peru, and were also implemented it in the Banco Columbia Columbia.
Still.
I would say the initial stages, but the performance is quite good we have some headwinds there regarding.
Cost of funding, but already Miyako, Colombia already have roughly 12% of that market. So we're very positive also in Colombia and with a longer vision.
We're we're bullish in Microfinance in Colombia.
Thank you for your comments.
Appreciate it.
And the next question is from Andres Soto from Santander. Please go ahead.
Good morning to all thank you for the presentation and congratulations on the results.
Sports channels on it.
I was just that mean.
It is already at the level it was a great topic.
I'm curious to see your thoughts on how much upside are you expecting from this level do you think that this is what wasn't sustainable Paul.
25% is what do you believe that's sustainable or we may have might be sharp increases.
Monetary policy, a trickle down on and you'll have a pacing out with all the all the a.
Government program portfolio.
Yep. Thank you Andres.
Make a quick comment and then pass it.
Sofa.
Actually.
I would say, we're already seeing a pipe because.
Because as we mentioned before.
We were expecting or in 2023, four that refer adjusted NIM to come back to pre COVID-19 levels and actually.
As I said we.
Religion.
This quarter. So we are we already see upside in the long run what we expect is basically to stay at those levels, but I would love it sets up to be much more.
Going to the detail.
I will say that our Sam Franco mentioned, we have been facing I will say a favorable dynamic that has accelerated the comparison that we were talking about why because the NIM has been growing faster due to the increase in market rates and we have contain the risk in very low levels.
Levels down the road and I will say not for the long term, but for the short term, we expect to have probably some improvement because the NIM is still growing at a healthy pace and we are still a.
Consider that we can maintain at reasonable levels of cost of risk down. The road is what is going to happen is wet age I'm. Franco mentioned is that we are going to have.
And not as high interest rates and a more stable level of risk that housing side, an improvement in the underlying quality behalf a change in the composition Vita increasing part of retail banking and Mi band go as a part of the overall mix. So.
I will say in the short term, probably some improvement but in the long term following the dynamics of a Franco just mentioned, but we have had having I would say at this point.
Favorable perspective, both in the components of the of the indicated.
NIM on cost of risk.
Thank you.
And then my second question is on dividends.
You have already a BCP 11.
6% core equity tier one and 15, 3% of the bank on a look forward for the ball for Blah Blah blah.
Look pretty solid.
You mentioned in the last quarter of the possibility of a special dividend later this year I would liked when all your reports around this issue.
I think as I as we mentioned previously this is a very dynamic.
For us with very clear rules first to fund the underlying growth of the business. It is high funds for a specific transaction. So probably later this year, we are going to meet with the board and make a decision at this point, we don't have any updated information where we got to this point.
I don't know exactly.
And the next question will come from Alonso Garcia from Credit Suisse. Please go ahead.
Hi, Good morning, everyone. Thank you for taking my question. So my question is on the outlook for loan growth going forward.
Especially this year.
Next year I mean, this quarter you posted a very solid performance.
For our loan portfolio. So my question is how do you think growth should look into 2023, considering probably a more challenging macro environment, but also the healthy trends that you are.
See you ought to grow loans and the initiatives you have to address a larger share over there.
Digital segment in Peru that is my question. Thank you.
Okay.
Go ahead, okay. Thank you.
I think in the long term, we still maintain our general guidance of one five.
The times nominal GDP in the short term, we have been seen and we maintain a positive view regarding PMA in general at BCP on me Bronco and the consumer segments. We have been seeing significant challenges in the long term portfolios and this probably is going to be the wild card at this point, we have been growing there.
Portfolio, mainly driven by short term operations with very modest growth in long term operations and this probably can make a difference next year if the environment is.
The political environment.
Remains volatile we are going to face the same challenges.
Okay.
Otherwise, we could have an additional NDA with rule because the investment has been very contain the last year.
Year.
That's very clear thank you.
And thank you. The next question is from Tito <unk> from Goldman Sachs. Please go ahead.
Hi, Good morning, Thank you for the call and taking my question.
My question on ROE.
ROE guidance for the year.
Uh huh.
I think this quarter, a little bit lower partly due to a higher tax rate.
How do you think about.
So the rest of the year.
And then also I think longer term you mentioned, an 18% Roe.
So what are we thinking given some of the economic macro challenges.
And then also just what should we expect the attach rate.
Hello, John Franco.
I don't know why but we didn't.
We weren't able to get into your question quite clearly, but what we have for this.
Basically they are we get real ROE for this year, our guidance and expectations for the upcoming years, if I'm correct.
So as I mentioned before we are.
We stick to our guidance of where are we or for our own current three five we are quite good.
Sure that that we will end up around that that figure on it.
In the long run it's still.
Discuss it before.
We expect to.
Come back to.
Hi team are always.
Which we've delivered in the past with.
Caveat a positive caveat I would say is that we are strongly investing.
In Oh digital transformation all of our lines of business plus the disruptive investments we're doing at Gretel. So we strongly believe that the.
The upcoming years, our competitive position in this new environment is gonna be a strong or even more strong or even stronger now than it was in previous years.
Yes, only a take on that.
It's like comment that I saw only a rep additions that we mentioned in the digital day, we are as Franco.
Franco mentioned investing heavily in the digital transformation. So when we expect a similar I wrote down the road is without a stronger business that can face a tougher competitive environment.
That means that 17, 5%, 18% three or four years down the road.
<unk> hired capabilities are stronger digital capabilities that allow us to compete better in a tougher environment. This is our underlying assumption.
Thank you and the next question will come from Thiago Batista from UBS. Please go ahead.
Yes, hi, guys. Thanks for the opportunity I have a follow up on cost of risk.
Because with Canada first half on eight.
Eight are lower on the low part of the guidance, but you've already stated that the cost of risk should end the year close to the top of the guidance where want them to one so can you give a little bit more color of this quarter per cent and ethics and if you believe that this level of around 1%. It should it be the recurring level probably made up there.
Sure.
Can you also have about one please.
Sure, Yes, I mean.
The cutoff grade we watch in 2021, and the first semester at all or the year.
Been quite low and you know.
At least with your.
About 60 basis points below pre pandemic levels. So what do we expect to.
To get.
Get back to normal numbers, yeah starting.
Starting next year.
But by the year, we expect them to get closer to.
Central Hudson mentioned to the upper end of a range of our guidance.
We are positive, but each year, we will.
We see a challenging macroeconomic outlook.
So I can say that the portfolios are still performing quite well.
Yeah.
Thank you and then the next question will be from Carlos Gomez Lopez from HSBC. Please go ahead.
Hello, Good morning, and again, congratulations on the strong yourself.
I'd like to address our costs again.
I always say you mentioned that you are investing Kennedy.
And your technology initiatives.
In the past we have referred to on this one P D. Even plenty complement.
Is that still the case should we expect a decline in expenses once the heavy phase is over and how much would that be I mean, I think there's a bunch of conferences or something like that.
Just curious as points in petrol finally, you said this.
Guidance is that something that the amount of money that you're spending right now.
Could you quantify how much you think reality.
Hello Carlos.
A great question because.
Even though we.
At the beginning maybe of the transformation and where we were thinking like that.
We do not expect this.
Transformation process to end up somehow.
What we can say.
We publicly said it in our digital data presentations.
February is that the new ventures, which obviously today are cash flow negative shouldn't be gastro.
As far as cash flow neutral.
As our portfolio.
By 2025.
The more mature ones like Oh, yeah, it should be cash flow positive by that year, but obviously seasons will be.
Investing maybe.
Maybe I'll answer that most of the investment that we're doing is wherever it juicing as an expense in order to be conservative, but the more new investments.
Which may.
Show up down the road.
Obviously, we'll be cash flow negative so again.
Our vision is that by 2025.
This disruptive portfolio just to put a name on it.
It should be cash flow neutral by 2025, therefore, it wouldn't cause that 150 basis points in terms of ROE discussing today.
So.
Yes, it's only complement our roulette.
The digital the more restrictive party such on Franklin nation, but in the Internet business, we are conducting a portal and profound transformation of the business changing the basic <unk> four on the database is improving.
Cyber security capabilities and improvements day operational capability. So this is also impacting the expenses and while we have managed to do during the last year and it's very clear. This year in particular is that the other part of the business has a expense growth very well contained.
In the low single digits and most of the.
The increasing expenses is in digital and you can see that in the reported very clearly.
Bailey linked to <unk> expenses and marketing.
And I will say loyalty related that is very linked to.
Operational levels. So we intend to continue this path.
Building capabilities inside and outside the core businesses.
Yes.
Thank you.
Okay.
Uh-huh translate to what you were saying it seems to me that.
Do you now see the level of expenditure.
Hum.
Something that will be continuing and ongoing and the dividend will be in the revenues of the meal.
Bank, just got too great and that's what we've done it.
Cash flow positive, but again it seems to me that we should look like <unk> revenue for the nine changes in expenses going forward.
Yes, that's exactly right, that's exactly right and I say, sorry for repeating itself, what we monitor very closely is the ratio.
We don't have the intention to reduce expenses, while we tapped the intention is to improve efficiency.
Through that study.
Political.
Okay. Okay.
There's so much.
The next question is from Yuri Fernandes with JP Morgan. Please go ahead.
Thank you all and good morning also a follow up here on the op.
Codell over like the investments you'll provide some numbers on the efficiency ratio just by by both initiatives right and you'll have I guess 94 bps improvement for the semester.
And about 240 bps improvement for the acquired 36.
Got it.
And we do.
The envelope calculation here just to make it seemed there wasn't been increasing the second Q on your investments here and going back to that point like.
Are you really kind of going to be more flattish on those investments work-furlough any update or should we continue to see an acceleration because again the second you kind of imply.
Some acceleration I guess above we really don't know the breakdown between operating expenses and operating income from those initiatives.
Looking around like $100 million.
Floyd on on those initiatives. So just checking if that's really the message like maybe second Q the peak and we should see this kind of negative $100 million.
Required there on those <unk> questions too high and it's lower than that and also in your op. Ed you mentioned, new initiatives and again, that's part of the path to monetization and micro loans.
That you were testing you had the pilot, but my question is how much of those micro loans may help you shoot to be breakeven to breakeven the initiatives on the opposite.
But like how big can.
Microphone four thank.
Thanks very much.
Okay.
Thank you for your question you already.
Maybe.
For all my broad perspective.
Why.
The whole new.
Jurors investment what I say.
New ventures is medullary Carrillo, our yuppie because we have.
A few other initiatives within.
The incumbents.
<unk>.
It's costing us 300 basis points of cost to income.
I don't know if that helps you.
It's roughly 150 basis points of ROE 300 basis points.
Cost to income.
<unk>.
Regarding your question on I would call it Nonetheless and got there.
Obviously, we have two approaches.
Our approach is actually to lend to learn of the beginning.
We have.
Over 6 million active users today, so the quantity and quality of data. We're gathering is huge but we have to be cautious.
As a completely new segment.
Yeah.
Loans are going to be disbursed uncollected through a completely new channel. So there are challenges going forward. However, if you see it.
And with a longer vision.
The place not necessarily on the web.
Obviously, we're going to be profitable by lending money, but the vision is much.
Brother in the sense that what we want to become is a super app for Peruvian Peruvian operating that segment, therefore loans or lending.
It's funny one of the vertical.
In which the basically on a plane, but there are several other vertical so that the day.
Most of the daily.
The necessities of this Peruvian.
Peruvian gunby figured out through Yep That's division.
Only to complement being a loans relevant is part of one of the better because that is the financial services and we stand to be as Fitbit App that provides payment facilities a lot of support for the clients.
Another vertical based on financial services and also on our marketplace so be it.
He's not the only play.
As part of a portfolio of initiatives of diesel burned up.
No support from you guys and thank you.
Congrats on the 10 million clients for you out there and did better engagement there. Thank you.
Very much.
Thank you.
And once again, if you have a question please press star one.
The next question is a follow up question from Jason Nolan from Scotiabank. Please go ahead.
Hi, I just wanted to ask about the government program loan so the non structural alone.
We saw the balance declined to them I think around 99, 9% from over 70 about 17% last year, what should we expecting on that front going forward. Thank you.
Yeah, Jason again are the.
The trend is that the PCB.
I haven't heard it made them solve this month is being.
They are solved by year end.
That.
Peter instead, which is 10% roughly 10% should go through.
Perfect.
We do believe that it's a non issue anymore.
There might be some.
Refinancing, but there's not a non issue anymore both.
The one liter of that portfolio is much better about what we expected at the beginning a couple of years ago the hole.
We're also executing.
Executing the collateral is working quite well.
For us, it's not an issue anymore.
Maybe an issue that some of you guys asked us before was about the concern of the this the pick up in interest rates specifically.
Banco that hasn't been an issue also.
Very helpful.
Thank you Gianfranco.
Okay.
It appears there are no further questions at this time I would now like to turn the call back over to Mr. Gianfranco Ferrari Chief Executive Officer for closing remarks.
Thank you all for joining us in this conference call.
Like to reiterate that this.
Fight the continued political volatility Peru's macro fundamentals remain solid and the economy remains resilient.
First as noted we may face some real challenges ahead, but as always we expect to navigate any changes and continue to generate solid returns for.
Furthermore, we acknowledge that high inflation and tighter monetary policy under impact our businesses are among the main concern in the market in this environment, we are well positioned to continue to drive our businesses to meet our expectations.
We anticipate structural lows to continue growing through the end of the year.
Although at a slower pace as compared to the first half.
This dynamic coupled with core income prospects and prudent risk management led us to believe that there could be an upside potential to our.
Estimate.
Going forward, while client payment activity is within expectations. We will continue to monitor closely any increases in earlier in an inquisitive indicators and take the appropriate steps to manage risk and protect asset quality.
We remain confident that the prudent approach we took at the beginning of the pandemic has put us in a good position today, especially for the future.
Summing up I am very pleased with the result of credit Corp. I'm excited about about the initiatives were understated undertaking to strengthen and consolidate our position as a leading player in our market, while developing our own disruptors.
We will continue to deliver on our own and our strategy to drive sustainable profitable growth.
Once an hour.
Digital efficiency initiative, and a threat and retain the best talent.
Finally, as I noted in my opening comments.
For our country talk further growth with a meaningful impact on their wellbeing opprobrium, we need the government to focus on generating stability security and our institutional framework and deploying their fiscal budget toward building capabilities across our economy again. Thank you all.
<unk> for joining us.
Thank you Sir.
Thank you ladies and gentlemen. This concludes today's presentation you may now disconnect.
Okay.
Yeah.
Okay.
Yes.
Okay.
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