Q2 2022 Intercorp Financial Services Inc Earnings Call

Good morning, and welcome to Intercorp financial services second quarter 2022 conference call. All lines have been placed on mute to prevent any background noise. Please be advised that today's conference is being recorded.

After the presentation, we will open the floor for questions and at that time instructions will be given to the procedure to follow if you would like to ask a question.

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My pleasure to turn the call over to Rafael Borja of inspire great. Sir you may begin.

Thank you operator, and good morning to everyone on today's call Intercorp financial services will discuss its second quarter 'twenty to 'twenty. Two earnings. We are very pleased to have with US Mr. Luis Felipe Castellanos, Chief Executive Officer of Intercorp financial services, and he says Michela Casassa Chief Financial Officer of Intercorp financial.

Would it be safe and we sit at one silo about salary Chief Executive Officer head of intermodal and he said I don't know if I might you chief executive focus head off into legal instead of kind of Saudi executive Vice President of payments Intercorp financial upside if he says.

They will be discussing the results that were distributed by the company yesterday, Oh well 15th.

There is also a webcast video presentation to accompany the discussion during this call. If you didn't receive a copy of the presentation or the earnings report. They are now available on the company's website or you face that combat D to download a copy or otherwise for any reason if you need any assistance today. Please call inspire will open New York.

I too want to 710 nice seats ethics.

I would like to remind you that today's call is for investors and analysts only therefore questions from the media will not be taken.

Please be advised the forward looking statements may be made during this conference call.

Do not account for future economic circumstances industry conditions, the company's future performance or financial results as such statements made are based on several assumptions and factors that could change, causing actual results to materially differ from the current expectations for a complete note on forward looking statements. Please refer to the earnings.

Asian Ah report issued yesterday.

It's now my pleasure to turn the call over to Mr. Philippe Casiano, Chief Executive Officer of Intercorp financial services for his opening remarks. Mr. Castellanos. Please go ahead Sir.

Good morning, and welcome to our second quarter 2022 earnings call. We appreciate you taking the time to attend this call.

I wanted to start by thanking all of you that participated in our first Investor day on June the 10th segments, we're very happy to share it with you in detail, our strategic priority and products, including our two two Ddos tried to the review of our main businesses, our sustainability initiatives and they keep.

That said, we are executing to achieve our objectives in the short term and immediate term and all sorts of cheap on apartments.

To make sure that the rubious achieve their dreams.

Focusing on the beach and developing development affecting our country, we continue to see.

Certainly political environment, where they come from patients or the relationship between the executive and they do have two branches continues. Unfortunately, we're getting used to frequent rotation of cabinet members as well as to hear about many corruption agitations targeted senior members of the executive branch.

The precedent and close member of your family and his team.

The economic front also continues to be challenging pressured by the international environment high inflation numbers slowing your car affected by a reduction of public and private investments and reduced consumer confidence.

The new economy Minister has initially cut the official GDP growth forecast to two 2% for this year from that prevailing three 6% yeah.

He has announced plan to boost public investment and implement economic reactivation.

And then which is expected to be announced soon.

The native GDP growth rate for June was out yesterday, the economy accelerated to grow about three 4% for the month when compared to maybe two 3%.

As a result growth for the last 12 months now it stands at five 5% and continuously soft landing, but what's the range of between two and 3% GDP growth that most economic agents expect part of the year.

Inflation rate receded, a bit in July and hit the inflation decreased to eight 7% from $8 $8 a month.

<unk> does not prevent the central bank to continue hiking rates and it's meeting last week the central Bank.

Increased policy rates by 50 basis points to six 5% the Central Bank now now expects the.

Inflation to return within its target range of one 3% in the second half of 2023.

Nevertheless.

Under these challenging scenario I fish continue to show resilience in our core operations.

However, it is important to note that the investment portfolio in our wealth management business has not been immune to the significant volatility witnessed in the global financial markets strongly affecting all of our investments and overall results.

In this quarter.

We have seen a recovery of our investments during July and August . However, we are very conscious that global financial markets remain cotton.

Our core banking franchise continues to recover he continues its recovery butter with a strong growth in consumer financing and commercial banking with increased activity.

Sound risk indicators, our insurance segment also had a good performance during the quarter as well as adequate evolution of the core activity of our wealth management franchise.

As you will see later, our newly created segment our payments either the one we're building based on easy pay and related initiatives also had a good result.

Our design traction continues to be strong as well as our growth in total number of customers I'm. Our core revenues, we strongly believe that our culture, our people our efficient operations, our sound capital allocation, I know, where our ability to adapt to changes through our to Judy Douglas.

Strategy are our strengths and not in the peanuts that will allow us to continue growing profitably in the future and in a sustainable way now.

Now I will pass on to Micaela to update you on our results detailed results of this quarter and give you a review of our operations. Thank you very much.

Thank you Louis Philippe Good morning, everybody went on my Dan Toohey their core financial services second quarter 'twenty 'twenty. Two earnings calls this time I will focus on two items of the agenda with financial highlights and then our key messages and takeaway.

I will start with a brief summary of financial highlights on slide three.

The main highlights.

On slide three insight I S. H strongly sharkey banking insurance and newly added statement, but kind of negative impact from investment with my earnings.

Earnings are 251 million installations, and 655 million so listen the first half of the year.

Reflecting the lost business and it was.

I can tell you got 147 million slightly each quarter and 171 million.

This is impacting their wackerle arrow, which stands at 11% and driving down the arrow, we have discretion. They stepped up 14, 2%.

Banking insurance and payments had very strong as the shelf in the quarter with $19, 4% 31, 6% and 26, 9% I really respect.

The same is true for the first half vishal on the Swiss subsidiary with first half ROE of $19 one per cent for banking.

24, 6% for insurers and 34, 9%.

On banking, we had a strong quarter in activity with double digit growth in net interest income and fees and client base continues to grow almost 20% per year.

Keith no meat and re pricing of new loans in Steckman High School starts this quarter up two 9% and in line with the portfolio me cost of risk has reached one 8%.

<unk> profit from.

Profit almost doubled Q O Q, writing I really up to 31, 6%. Thanks to a strong growth in interest income of 27% Q on Q.

And 70% on a yearly basis interest investment income with a return on investment portfolio of seven 7% this quarter.

Wealth management results continued to be affected by a negative impact on the investment portfolio would have wanted recovery fee of 9% quarter on quarter.

The nice recovery in asset under management.

Finally on our new payment business, which have started to show the profitability of newly acquired East Bay with a continuous strong growth in business and 27% Arrow in the park.

And when they keep their permission to take us for the quarter.

On slide number six and seven I would like to highlight the strong growth in the quarterly and yearly mean, Ohio.

There has been a 50 basis point improvement in the quarterly NIM or how you face.

Right.

Two 5% in the semester two points to four 7% already above our guidance.

On slide eight total revenues for <unk> grew 3% on a quarterly basis, thanks to the growth registered in banking or high.

5% in the quarter insurer with 20% and the contribution of revenues to the consolidated figures from payment, which grew 1% on a pro forma basis and despite the negative revenues registering with management on a yearly basis I said registered a 3% decrease in revenues was very positive.

Multi banking growing 13% year over year and payments.

The 3% year over year and decreases in insurance, mainly due to the extraordinary revenues reduced kidney.

Walker.

One together with the negative revenues from wealth management of these quite well.

On slide nine the reported efficiency ratio.

It was 40%.

Above all our 75 to seven seven guidance provided at the beginning of the year, but it would be 36, 4% we've seen our guidance when excluding investment loss at the wealth management business.

It is important to note that there is an impact in our reported figures, Ohio face due to the consolidation of EZ safety stocking eight which reflects a high any accretion expenses, if yet I see nothing in the base of 2021.

Normalized <unk> expense isn't I do 4% on a quarterly basis and 16% on a yearly basis.

At interbank.

He says he ratio remained relatively stable year over year at 42, 3% in the quarter as expenses during the first half of the year have increased 14% mainly due to three reasons.

I, 17% increase in technological and new ways to which include the technology expenses for our digital transformation as well as new investments in payments and are ready to move out.

A 14% increase in personnel cost, which is mainly coming from the increase in mandatory employee profit sharing in line with the improvement of the local depth.

And that 24% increase in variable costs related mainly to credit cards and in line with the percentage increase in credit and debit cards.

Generally seek and financing volumes.

Other expenses have grown single digit, reflecting our continuous cost efficiency.

Moreover, we have continued with our branch optimization program, reaching adulthood with actually the number of branches of almost 40% or more than 110 branches from the peak in 2016.

Increase in costs for the rest of the year that the bank will be lower when compared to the previous year, reflecting the base effect of the recovery on the C V P, which started in the first quarter of 2021.

On slide 10, we continue to have a solid capital position as evidenced by the ratios instead of a bank that also need to say what I can say.

Core tier one ratio at interbank recall that after the distribution of dividends in the first quarter and he said 11, 1% as of June 22.

Total capital ratio stands at 15, 2% well above the industry yeah. That's despite the strong growth registered this year.

Now I will focus on the six key messages, we would like you to take home from this call on slide number 12.

We are operating in a very challenging macro scenario.

Second investments in sharps recovery, ensuring that they're seeing busted in wealth management.

So strong quarter in our core banking business, which is driving top line growth.

Fourth we continue to work on a two tiered digital strategy showing positive development in our digital indicators from foster growth.

See we are showing kidney has to use on our payment business that shows strong growth and finally, we will show you a little bit of the progress we are making in our testing ability.

Yeah.

Moving to slide 13, we are showing the evolution of some of the key micro indicators as already mentioned by Mr. Li The exchange rate actually do start ups and downs in the past week. We can see 83 solid per dollar inflation has picked up to eight 7% as of July in line with high levels of <unk>.

In other countries and interest rates have continued to increase as evidenced by last weeks extra increase of 50 basis points above the central bank's reference rate, which stands now at six 5% as well as increases in the dollar rate, which stands now at two 5%.

We have seen a reduction of the extra salehi queasy, especially in the palladium market in the past.

In the past month after July but we are also starting to see the positive liquidity events of the flows coming especially from the private space.

On slides 15, and 16, we are showing first good news.

With the recovery of the return of the investment portfolio of insurance, which reached seven 7% in the quarter. It was six 4% in the semester more in line with past performance.

On the wealth management front, we have continued to see a strong no negative impact of mark to market on the investment portfolio. During this quarter, which adds up to the performance of the previous quarter and remains in there Terry.

In fact in the first half Vishal Shah daily or sofa.

I think you said you did mentioned we have seen some positive developments during July and August but cannot yet confirmed a positive trend for yearend Ashish will depend on the continued recovery of the market.

On slide 18, moving to the good news from banking would have continued to see a solid performance and activity in the quarter, yet some signs of slowing down inside 19 actually we have started to adjust our credit underwriting standards in specific sub pockets of flow in compliance we can start to see some impact.

Slowdown of the economy and sustained inflation crazy.

Cash and debit card turnover has increased substantially year over year or 65% for credit cards, and 78% for debit cost. Despite the slowdown in the economy. We continue to see important growth in turnover as both credit and debit cards continue in their pocket.

Great penetration in the country, which continues to be low.

This growth has allowed us to increase market share almost 150 basis points and in the past 12 months for the combined November 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.

Moreover, credit card sales have increased 50% year over year close 2019 levels.

New disbursement of personal loan have seen a slowdown when compared to the previous quarter, but our 44% above the same quarter of last year as of the end of June credit cards, and personal loans were up 46% when compared to last year and are up 21% when compared to 2009.

Pete.

On the SME shrunk, we have continued to see strong disbursement in the second quarter, which are seven 2% above the level of last year and that's helping this portfolio to grow nicely nice to meet you in this year.

On slide 19, one of the very good news in this quarter is a sustained double digit growth in net interest income and fee income.

Net interest income at the bank grew 18% with a strong contribution net interest income coming from say detached and personal loan fee income grew 17%. Thanks to the strong growth of credit card fee income due to the strong evolution of credit and debit cards turnover, but also to the south.

Same strong growth in fee income coming from cash management services and commercial bank.

Other income at the bank was down 14% year over year, Sony we call them.

All in all total core revenues grew 13% year over year.

Strong recovery banking revenues, which continues with a positive operating leverage.

On slide 20, we have seen a strong portfolio to higher yielding loans in the past 12 months.

Retail loans reached 52% of the total portfolio vessels, 46% one year ago.

Moral their credit cards, and personal loans of which 71% of the total loan book versus 15% one year ago.

This effect together with increases the SME loan book still small and the increase in rate is pushing deals alone I've watched 80 basis points in the quarter and 140 basis points in the year, reaching nine 1%.

And NIM 40 basis points up in the quarter and 100 basis points in the year, reaching four 9% for at their back.

He just got just at Nee has improved 10 basis points in the quarter and 90 basis points year over year up to three 7%.

We expect the positive trend in NIM to continue in the coming quarters, though at a more moderate pace.

We have also seen rising cost of funds as we start to see the effect of the rising rates on dollar fund on top of the already existing and newly increases and solid state as shown on slide 21 cost of funds reached to doing the work that's up 40 basis points on a quarterly basis and 80 basis points in the yearly.

Is it still lower increases when compared to yield on loans. We continue to have the buck the best loan to deposit ratio among peers I had another 1% as of June 2022 levels more aligned to pre COVID-19.

The system as a whole has seen a reduction in the excess liquidity that was present in the market in the past month due to the many government mission and has returned to pre COVID-19 levels at around 108%.

On slide 22, we have a healthy risk profile with increasing levels of coastal fleet in line with the shift in loan mix.

Cost of risk in the quarter was one 8% getting closer to pre COVID-19 levels of around 2%, mainly due to the recovery in the retail portfolio, which has a cost of risk of three 6% close to the 4% recall.

The NPL coverage ratio stage three loans at 186%.

Our box because it leverages, 158% and this is mainly related to the coverage ratio of the retail load, which since I've, almost 250% well above 117, 9% recall.

Yeah.

Now, let's move to the fourth key message on slide 24 of this presentation related to the positive development in our digital indicate.

We continue to see strong progress you know digital indicators as of June 2022 digital customers reached 68% of our customers who interact with the bank. During the last 30 days a high point in the past year.

Digital application reached 56% up 13 points from last year and digital sales reached 67% in June increasing nine points in the last year.

We have continued to see an important number of new digital accounts being opened for both individuals and businesses as at the end of June 66% of new retail saving accounts were opened digitally digitally with 92% of new business accounts were opened digitally up eight points and 12.

Point, respectively.

N P. S for digital customers continues its path to become a top in D. S. In the next year, reaching 47 points this quarter.

Seven points in the last year.

You shouldn't need that indicators show positive developments as well with select insurance at 80% and these are cash life premium and this is Ed provost, reaching 74% of total nicely.

On slide 26, we continue to see any important growth in our customer base of around 20% in both retail and commercial banking customers, reaching 5 million at the end of June .

Starting this quarter and following what we already introduced to you during our first Investor Day on June 22. This year, we are starting to show separate information on our fourth business segment payments, which for the time being includes information related to ebay and which will in time.

Starts to add up the inflow related to the complete payment ecosystem.

Information reported this quarter is still preliminary and we are in the process of determining the fair value of the acquired assets and liabilities as well as the intangibles, which will be reporting during the quarter, we've seen the payments segment.

After the acquisition of the remaining 50% of easy pay and the creation of the segment Ghana story hasn't been appointed as EVP of payment and Ah you face, formerly EVP of retail bank.

Within the bank and I'm proud of the former EVP of operations and technology has been appointed a new EVP of retail and that's also the former EVP of digital delivery east the new EVP of operations and technology.

On Slide 29, let me start reminding you. The three main line of business of ECP Huh acquiring business, what if they use the card present market leader and a strong competitor in ecommerce that we see some upsets in all different types of payment platforms, including visa Mastercard I'm, it's diagnosed apple pay.

Two key and get them rather than with fee income represents around 89% of the total fee income at the end of June correspondent banking, which represents 7% of total income and credit cards professional which represents 4% of total fee income.

On slide 30.

As we explained to you on our previous meeting debate is a company that has been growing substantially in the past year, especially in the past month as Eddie mentioned like the 50 50.

53% growth in the number of merchants and 66% growth in the number of transactions in the past year.

Moreover, it has monetize these growth as evidenced by the 33% growth in revenues in the past year, reaching 81 million Salt Lake in the park.

It is important to note that there is still a big space for further growth given the low penetration of digital transaction.

Finally on the sexual related to payments, we wanted to show you proud the girls clean and do we have accelerated this year, reaching 8 million users for clean into media and he's done in Fuji, especially how both statements platforms are picking up a number of merchants with two and three times the number of.

Registered last year, respectively, and even more in number of transactions with three and four times the number of registered last year.

Moreover, we have seen a strong growth of more than 20% in the single month of July and the number of transactions.

In the short term, we are working on growing each initiative, both independently and creating the synergies to accelerate the growth of our payment ecosystem by having our assets work still what I call long strategy.

We will focus on increasing transaction volumes all free nations additional services, such as saying, it's only build inventory management and cash advances continue to pay the loans to merchants induce you should pay a distribution network for interbank photos as well as well as our social channel.

Okay.

Moving to slide 33 regarding our sustainability strategy, we continued to build upon our four focus areas.

Instead, we will finalize its first carbon footprint measurement, what you said about kind of a third party certification of their measurement Michelle.

Working towards our goal of promoting financial inclusion for federal with Oh did you definitely nationally the patient platform I think the math exceeded expectations in the first three months since its launch at the end of April .

At a national and regional level, you'll see several new recognition for our culture and talent management.

And furthering our commitment to comply with new with the highest international standards Interbank is now thinking that as long as the UN global compact and we have kicked off our first ever platform why materiality assessment for all of it.

Finally, we have launched an E learning sustainability course for employees at all levels across all businesses to strengthen often the sustainability culture.

Yeah.

Before ending the presentation, let me now move to the comparison with guidance for this first half of the year.

Capital ratios to remain at high levels with total capital ratio of above 15% and core equity tier one ratio above 11% first what theyre in first half total capital ratio stands at 15, 2% and core equity tier one ratio at 11, 1%.

It's in line with guidance.

Second I continue fast recovery in core profitability without he says I really above 16%.

<unk> was $14, 2% below our guidance, mainly due to the negative impact on the investment portfolio at Intel Eagle Ottawa.

I really for banking insurance and payments were strong in the first half of the year.

Yeah, then I really will depend on the recovery of the investment portfolio as we expect banking insurance and payments to continue to perform well throughout the year.

So.

High single digit growth in total loans led by double digit growth in consumer loans together with this institution of a portion of our C&I loans in commercial banking as of June total loans grew 14% above guidance and consumer loans are growing more than 20%, but we expect growth moderates in the second half of the year.

Year end to be in line with guidance.

Revenues will continue to recover with a mean expected between four 2% and 46% the recovery of Mi is taking place a little faster than we expected with first half hassanein already up four 7%, which indicates that we will most likely and that's the.

Here with me are both guidance.

Cost of risk to be around 1.8% first half cost of risk is up one 6% with the second quarter cost of risk at 1.8 that trend, we expect to be in line or close to that.

Finally, we will continue with our focus on efficiency and we expect the efficiency ratio to be between 35 and 37% the first half efficiency ratio.

The $8, 7% above guidance only due to the negative impact on revenues from the investment portfolio of the wealth management business.

Excluding such effect efficiency ratio would be 76, 9% within our guidance.

On Slide 34, let me we got the six key messages of this presentation.

First we are operating in a very challenging macro scenario second.

Second investments, we should have recovered and insurance are still impacted with management.

So we had a strong quarter in our core banking business. Indeed, it's driving top line growth.

So we continue to work on a two P M digital strategy showing positive developments in our digital indicators to foster growth.

Yes.

The key he shall finish on our payments business are promising and showed strong growth.

Finally, we continue making progress in sustainability.

Thank you very much now we welcome any questions you might have.

Yeah.

Thank you and at this time, we will open the floor for your questions first you want to take the questions from the conference call and then the webcast questions.

I would like to ask a question. Please press Star then one on your Touchtone phone.

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Simply type your question in the box and click submit question.

Pause momentarily to compile a list of questions.

And our first question today will come from Ernesto <unk> with Bank of America. Please go ahead.

Hi, good morning.

Burma Kayla and good morning to all your team. Thank you for your presentation.

I have a quick question on my side.

The first one is on the well monitoring business.

Can you elaborate what was behind the law was it related to fixed income positions or equity on.

On the call if you can provide.

On what would be the glut of who could do will be implementing who have more stable numbers I'm cobalt too much volatility there so, especially as the rest of the subsidiaries have always above 19%.

Clearly the one affecting the consolidated number.

And then my second question is on asset quality, we noticed that you're a clean protocol at all so the lower NPL ratio for the quarter. Oh. However, when looking to do is really wasn't green argued to the loan mix.

So how should we think about the npls in the next quarter.

When do you see them returning to the pre pandemic level.

And then a lovely question on your Google channels.

From a provider come color on what is the level of profitability that you currently have good clean and turnkey or on when do you expect them to become profitable you've got is not the case.

Okay understood. Thanks, very much for your questions. Let me give you a background.

I'm, sorry, but you didn't talk to each of them.

On the wealth management on the investments it's itchy.

Obviously, what would have shopping there as mentioned during the during.

By my introduction.

It's very much market related and we've seen what has happened in the market and beef.

Three months, especially May and June have been very volatile.

Again, our portfolio, which is a mix and maybe we can get a little bit more detail later is of some equity.

In fixed income, but given the fixed income indexes have come down significantly.

Given what's happening in inflation, so we track our investments against certain benchmarks and although we have over performed our benchmarks.

Results overall.

No.

And if you remember.

Profitability for Intel Eagle.

Year in year out has been around 25% or are we also so this year is particularly our wagon because off of international market conditions.

Obviously again it has not been immune to those.

It's a little strange.

We are very confident on the investments we have and they are related to financial services technology very close to obviously what are we doing because.

The vision there is twofold.

Twofold first we don't believe me.

Medium term long term there are a good investment and we like the industry dynamics, but also allow us to have a foothold in order to be close to companies, where we can.

Learn about their operations and in their own jurisdictions and that beef.

It's through our management teams in order to be close.

In certain.

Instances by just following the competition or even having access to management and participating more actively in the understanding of their stuff that you'd think about it yes.

Basically that's the overall concept so hopefully volatility.

<unk> will go down once the markets get a little bit more stable.

We do see that he won't returning.

Medium long term to the levels of profitability that we hope you see because we we think.

Those are.

Hum.

Names or or sectors, where we are looking at.

The the particularities, maybe I don't know if you can elaborate a little bit more.

Yes.

I think you answered pretty much everything but on the first part of where what type of asset class has contributed to the to the mark to market losses.

Like Philippe was saying, it's both equity and fixed income basically everything was everything was down for the first six months in the market. So those.

Those mark to market losses have affected the portfolio. The other thing I wanted to mention is <unk>.

We have about 80% of the results in our portfolio go through P&L and only 20% through other comprehensive income. So what we're seeing here is most of the impact is going through our P&L.

And that's and that's why these it seems.

A little bit large, but I think it's it's the way the the accounting mandates and you know it's I think it's a little more transparent also because we are taking most of our results.

Again through P&L in a quarterly basis so.

I think.

I think that's it.

Yes, basically what you see there is what you get now on the second part of the asset quality.

As Mr. Michela mentioned, there's a couple of things first there's a change in the in the <unk>.

Asset mix, what were getting more heavier than previously basically returning to our previous levels pre pandemic of our consumer loans and credit cards and there also we've been seeing it.

Given the high inflation level strategies deterioration on the portfolio itself.

And as I mentioned, we are already would have been already taken measure for the last three or four months actually in order to cut a little bit or improve our underwriting standards in certain segments not so so hopefully we will return.

Due to lower numbers I won't say by year end or early next year, but maybe if you can help us a little bit more yes, Budd as well.

Yes. It is.

Good morning International and as I showed in the in this line of cost of risk for this quarter, a whatsapp to 1.8 person still slightly below pre COVID-19 levels now and this is being driven especially as Philippe mentioned due to the portfolio mix and the recovery in the balance sheet, so, especially credit cards, but I don't.

So personally I don't know what the cost of risk of total retail is up three 6% now closer to 4% of pre COVID-19.

Actually what what I think it is going to happen is that we will be close to these levels.

As of the end of the year, but we do see credit cards, especially already very close to pre COVID-19 levels now so even if steel not due to the portfolio mix and normally have also a little bit more mortgages and before it kicked in in the overall cost of risk still below pre COVID-19 levels now it is really really good.

Closely, especially within the consumer loan book now so most likely during next year, we are or we will already see all the effects of this new portfolio and and latest we will be mainly maybe even slightly above the the break up of two 2%.

Okay, and then the third part.

The digital channels.

Let's see these no.

<unk> is already a profitable company and we've taken.

Taking a cut at showing the numbers as you know 60% of all if you take.

Always went through into banks financials, and now that we acquire the other 50%.

We have been able to isolate that to try to get to.

Ooh illuminate a little bit more of the value of.

Of that.

Platform a franchise.

I mean again I mentioned this is still preliminary because we're still doing the accounting work. However, we do expect that for next quarter. We will have if you were off.

The fair value of the atrophy.

Don't include Amendment.

Goodwill or whatever get created there.

Under works, so, but we'll be updating on the numbers.

On.

On the other solutions again, Mimi just to remember and we explain to us.

Firstly in our I know where.

Investor Day, He's basically a network that is facilitating a b to b b.

<unk> M transfers.

For our customers.

So is that a network and it is a digital wallet itself. We have some some numbers there that are very interesting in terms of acquisition costs.

And our operating costs.

Much lower obviously, you got into traditional channels and I don't know if Carlos if you. If you can give us some light on on those type of numbers. So we can put some some guide us on this.

On the so.

As you mentioned first going to do we see pay it is profitable.

Like.

Income before taxes for the first half has been 45 millions of lives.

For this half and after factors has been 28 millions of lives.

EBITDA is strong in and we continue to grow and that means. It is so so that is good and healthy and we as mentioned by Michela, we expect to continue to grow Mississippi. So that's that's solid.

In terms of turnkey, it's probably the lowest acquisition costs, we have a.

I know you face.

We continue to grow we've grown almost.

Almost all of it probably around eight or 9% per month in the last quarter.

So we grow them.

In terms of income, it's still not perfect that one.

But the expense is very low it's it's a it's very organic and so.

So, we'll see where we're trying to put together statements for the whole payments vertical.

We will try to show that in the future, but right now we're focused and continue to grow and continue to grow donkey I need sync up.

And obviously the number of merchants on transactions.

Okay. Thank you.

Hooper telco hunker for Mike.

Thank you Ernesto.

And our next question will come from Kuan recall day with Scotiabank. Please go ahead.

Alright, Thank you for taking my question.

I had a follow up on the payments.

Business, So I think I want to.

You know more about the profitability and growth expectations.

In particular, you showed up I think ECP had that wrong.

The same thoroughly.

Cossack last year, 51% early in the first half of this year.

So.

How should we think about the sustainable long term relief or would it be part of the business I mean textbook growth expectations.

What are your growth expectations for this business.

Okay, Hi, Thank you very much for your question, let me take a crack at it and then I'll pass it onto towards bottles.

Again, I want to reiterate that and.

Again, we have 50% of the numbers of easy pay 50% of the numbers are as they were already at interbank. So what we've done we've taken them out.

Not the performance of the other 50% we're still working on the final accounting of that once we have that.

Complete accounting numbers, we will be able to have a.

Two six.

In.

Number.

For the overall transaction after after purchase.

And but yes, it's a very profitable operation it continues to grow.

Because the opportunities are very big.

We were not ready to provide guidance at this stage.

<unk>.

Because we I mean this is a very new acquisition. However, the prospects are very positive. We go with children continue to think that.

Gross is going to be very important.

Obviously, we probably win with a new strategy we will.

Actually right investment levels are.

But whenever we go deep into that we will be able to sharing with you are on the market.

So far these still work in progress.

Let me pass it onto a card was to see if there are anything.

I missed that but again the guidance on easy pay is still something that we are not ready to share.

Yeah, No I agree with Olivier just just to make it clear on the accounting numbers.

What may change because of the goodwill is how you calculate the euro or the the equity with INO you face.

Income is there and it won't change though.

The thing that's good in terms of ROE, obviously, we cannot give specific guidance.

We've been growing in the past couple of quarters, where we've been gaining share in physical P. O. S. We reached we believe around 50% is coming from from.

<unk> 15, four years ago, and that's where we reached 50% in the last few months, we expect to continue growing that but probably not not so much market share, but the market continues to grow there's more payments so broadly the number of growth and in merchants.

We've got them kind of.

Might slow down, but we see more payments every month as people are changing their habits.

Additionally, a opportunity for growth is E. Commerce, we continue to grow as we showed in the presentation right now e-commerce represents 16% of the fees.

Charge, we expect to grow that it has been growing from 12 to 15 to 16. So that's another avenue of growth and and then we will look for avenues of additional income.

As michela.

Nicola mentioned aggregated services.

Gosh, a bonds and stuff like that that should come in the next few quarters.

We develop we try it and.

And start to penetrate our customers we have 800000 a.

Merchants, so it's a lot of opportunity for additional services in person. So that's the kind of the plan no specific guidance, but those are the avenues of growth for the next couple of quarters.

Still lots of work in order to be sure that we take advantage of those opportunities.

Yep.

Thank you that's helpful and one more question if I make it. This one is related to the consumer loans. So I saw that the payroll loans are growing at a slower pace. There's this great cause another type of consumer loans.

So I was wondering if you can.

Can you comment on what's driving this difference is on whether you expect this to continue be indicate.

Sure Yeah, I think what.

When it's driving.

This is first it's a our discipline on rate basically that's the main explanation, but seen competitors do some crazy thinking about that market.

We're very disciplined on pricing with our.

Cost of funds going up.

Certain deterioration of the overall economy, we were very disciplined I'm sure we were very focused on.

Sustainable growth and I think that some rates that we're seeing in the market are not ones that we are ready to be very aggressive so so.

Probably that's going to continue for.

For some months a heck on once the specific cost of funding and go through the P&L. So comparing us probably that is going to decelerate a little bit Darren aggressiveness as well.

Very much market related appetite.

About profitability for us in that business I don't know michela or Carlos if you want add something.

No I think I think he's not no I mean, we've been very disciplined in the payroll loans, which is the one that is growing a slowing or not because I mean, we are market leaders. There now so basically we are like.

I'm trying not to contaminate if you wanted the overall right now in a market of growing rate and we've been seeing a decrease in rates on new disbursement from competitors. So that's a wash their regional and why we have tried to be as much conservative I suppose people do it all in trying to preserve the profitability of that business.

Yep.

That's what it does seem to think it from the Beaumont.

Jordan.

Yeah.

And our next question will come from Jorge I understand with Santander. Please go ahead.

Hi, Thanks for the kidney space and there are sufficient.

I have two questions I'd like to understand your expectation is on a risk adjusted NIM for the rest of the year do you do you see upside.

So your first half.

4% level or do you expect a more balanced mix of higher cost of risk and net interest margin.

Cleaning risk adjusted NIM.

Levels also I wanted to ask you about.

The effective tax rate what was the reason behind that.

The higher than 30% effective tax rate this.

This quarter and also what is the effective tax rate that you can size for us.

For your guidance for the year of above 16%.

Thanks.

Okay number one I'm going to bucket the strange to me given that a number two I'm going to venture to oscillate and maybe it didn't kill a can correct me or complemented by I think particularly this these are.

This quarter the high effective.

Our tax rate is related to the intangible results basically because it's a.

I lost that not that degree.

Normally it's Patrick.

So so boy that's using it but we feel that we'll be able again to answer number one and correct me and number two.

Yes on tax rate you Youre right, just adding up that also there is a slightly higher rate on an inter bank no. It's I mean, the taxes are calculated with local account denying the tax base has been a little bit higher in local accounting standards.

All supply to the tax rate and on the first question related to the expectation of risk adjusted NIM.

I mean, we expect NIM first of all to continue to improve throughout the year, though at a more moderate pace now you've seen at the bank, which perhaps 40 basis point improvement in meat in NIM in one quarter now we don't expect to see that in the next of the year, but it should continue to slightly.

Recall, there, but also cost of risk or if it's kind of a slightly moving upward due to mix not so most likely when we put the two things together the risk adjusted NIM I mean, either is going to be a stable most slightly I don't see it going up one any further because of the two opposite.

Effects.

Driving and.

And I think the last question was related to aim the arrow in guidance for year end right.

And that's with the black tax rate for the.

ROE guidance.

Yeah, I mean items wasn't it.

It wasn't even on.

On the last quarter on the first floor.

I think so I mean, we have more information, but I just wanted to understand the light saturate, maybe but more what do you expect going forward. If you expect the effective tax rate to be around 29% the rate.

Is that.

I mean on the effective tax rate to be sincere emptied out it will all depend on the impact of the investment portfolio I mean with normal conditions. It should be around the levels that we have seen in the past year or so so no below that that's 29%, but we need to check would be within <unk>.

Is it portfolio in because I mean normally we see numbers more close to 25, 7% not only effective.

Patrick So if we have a positive resulting in Italy, we should see numbers normalize into two dose levels and related to I really and as I previously mentioned I mean banking insurance and payments have shown strong or at least in the first half.

We expect that to continue to happen in the rest of the year would be the question Mark is the recovery of the investment portfolio and how it all add up to the island.

Okay. That's very clear thank you very much for them.

No. Thank you for the question.

And our next question will come from Ben Daniel Mora with credit card capital. Please go ahead.

Hi, good morning, Luiz Felipe and Michela and thank you so much for the presentation I have a couple of questions. The first one is regarding the loan growth.

Even so as you mentioned that you expect a single digit loan growth in 2022, what could be the spin.

The expectations going forward considering.

The high inflation on the higher interest rates the economic deceleration do you feel that you were going to have to be like a strong deceleration for example.

In consumer demand.

The challenging macro scenario.

Considering these these scenario my second question is regarding to me in the coming quarters, but considering also the loan growth.

The performance of the higher interest rates.

When do you feel that we can see the peak of the NIM.

And what should be like the normal figure also named in the long term for Florida.

For the company. Thank you so much.

Okay, Let me pass it onto to Micaela.

Right on those especially I think for that.

Okay. Good morning, Daniel Thanks for your questions.

I mean related to loan growth as you have seen the total loan growth no. Excluding the feedback has been very high as Julie for these machines that we are guiding to go back to single digit levels for year end now what we have seen already.

Starting July .

Ah.

And lower growth in consumer finance not so so that path. If you want it's already there and we have also seen a little bit slower to slow your growth in mortgages go hand in hand with the increase in rates.

That has been very strong now in terms of new leases.

In commercial banking, though has seen a strong second quarter, especially cause Smes recovery.

But also because he were very cautious in terms of rates in the first quarter and then once the most update because this is where you can read them in the market. We have started to Lynn short term working capital loans to large and medium size corporates now for sure investment from companies.

I mean I lived there due to the situations. So commercial banking, we will slightly a decelerate, but there was a positive effect related to the E. M repayments are actually back so basically company Sharon.

Replacing all the active at Lowe's with traditional and that is helping.

Loans to continue to grow even if investment no.

I am not there so all in all for year and single digit Geely reached.

Recently, especially consumer will continue to be a double digit and in most likely I mean, we are not giving guidance yet for 2023, but that most likely we will see.

I mean lower levels of gross non next year when compared to two D. Here. When when there was also still kind of a recovery a favorable base effect from from service levels and taking these M. Two nimitz M I.

I mean, here's the loans, especially will continue to go up I mean for for some time.

For some quarters, Okay, I don't have all the quarters for 2023 that he will continue to rollout because first the portfolio mix has already changed and that has a full year effect.

In the numbers in the coming weeks, but also the increasing rates has been cheap and graduate and we've got new increases of rates even.

In July you know not so basically the.

I mean the yield.

We'll continue to increase so all this creates a positive effect in jumbo loans, which will drive a M.

Stephen East, but we are also seeing also a M.

A faster also increase in cost of funds because of the hiking rates, okay, but all in all a we will see you in the low still increasing in the coming quarters and that should drive also naeem upwards.

During the rest of the year in a part of 2023.

Okay.

Yeah.

Perfect. Thank you so much for downstream.

Thank you.

And our next question will come from Yuri Fernandes with Jpmorgan. Please go ahead.

Thanks to everyone I have just a question regarding the.

Equity growth like your OCI impact I guess I'm, telling you all had some hits and you mentioned during the call that.

Part of the the losses, they worked through P&L and parts on the on the equity side, but when we look to the bank and the insurance company. We also had some OCI.

So my question is what should we expect to hear in the coming quarters, I guess, the 10 year U Peru, it's more stable now. So maybe you know is the worst behind for OCI, and how bullish or Victor your capital ratios, because we don't see a lot of change on your tier one ratio, but just checking how you know OCI losses cord cutting back to there.

Thank you.

Oh, Thank you Uri.

Let's see I think I can do right now some of our.

Portfolio, especially probably at the insurance company at the bank, you're right because again in Italy, or most everything mostly everything goes through equity.

Two P&L I'm sorry.

So obviously for the banks like interbank.

You know the fixed income portfolio basically that's all fixed income.

I believe that the inter bank level that sheet in OCI.

I agree with you probably the worst is what we're seeing now or would actually has improved recently, but we have seen by the end of June .

To be at the beginning of July so we do.

Do you expect some upside on that front however.

Okay.

We have to closely follow.

Market evolution.

We are very well capitalized.

Having.

Toll, but that affected significantly depending on the month of the year, especially I think for year end, we won't see significant changes probably early next year, we'll see something.

But maybe I can pass it onto retailer to elaborate a little bit more this year.

Yes. Thank you recently paid and Judy I actually a we do have already an impact and in the ratios, especially at the bank level. Okay. So the unrealized losses, if you want another one shot and go through the OCI.

At the bank because of the increase in rates and the impact on the in sovereign bonds portfolio, we already have an impact in the ratios that you see so basically the total capital ratio that we show you not in the numbers that.

We have a shared and also the core equity tier one already are reflecting a negative impact of this so basically what I'm trying to say is that the the 15, 2% total capital ratio in the 11th.

One person capital ratio actually would be much higher if there is the negative impact of the and realize a gauge was not there in the portfolio and we're talking of.

That can be they like 50 basis points above the ones that we are showing no.

Actually I mean, there is there is upside potential therefore duration, but let me also mention that we still need to watch in pointing out there is a seasonal effect a with these impacts, especially in the first half of the year not because those results are offset by the retained earnings that you have so basically what's happened since then.

At the beginning of the year, Nobody who do not have I mean after you have capitalized and also distributed dividends do you see the negative impact altogether, and then Wednesday, the retained damage continue to build up throughout the year those impacts.

The reverse in the second third and fourth quarter of the year, so that that much one for one of the reasons why not the core equity tier one ratio in the first quarter was slightly below the 11% in 2009, because we had the two effects together the distribution of dividends, but also no negative impact from the unrealized gain.

Just a in India.

I don't know if that's clear.

No. It does not include Felipe and Michela I guess that was my point that I like is you'll have some kind of upside on their capital was and hopefully you know rates become more stable in Peru. Thank you very much yeah, I think I think I'll do one more thing just in terms of that portfolio.

Just to that's basically.

So were diagnosed.

Global related to like global bonds.

Through risk so I'm sure sure sure sure short term no long term data so.

Another fact is given their long tenure once.

We got an electric.

Effect on that portfolio should also.

Help them bring it on.

It's central to what.

Diminishing those numbers as well.

Yeah perfect. Thank you I mean, maybe.

Let me add one thing jewelry, sorry, I mean, just not not to leave the impression that we will have as I stated capital ratios at the Super more higher than what we're showing is that starting January and we will be implementing some changes in the definition that the superintendency has already a disclose but at sky.

I mean regulating into the detail and there are a couple of things that we are still evaluating things that first wear and risk weighted assets that now could go directly to the reduction of equity not that that could have some impact in in the ratios location. Once once we have that sorted out because we are in the face of giving comments today.

So they're super Intendency, we could give you a little bit more and more light on that.

So just to make clear in the TV less Bart like bottom line is that maybe the risk density may increase a little bit below that.

Right. So basically you can have some well no no no no not not increases in risk weighted assets not there are couple of things that were before and recently that I think that could go to debt to be deductions directly from equity. So basically it is a different impact.

In fact, when do they they'd actually directly from equity.

Versus when you have them in risk weighted assets.

Got you so basically like we had we have some countries like the Tas you were using like some kind of risk factor on yard that are deploying now you're kind of deduct directly from the capital in because they have a basic effect. It can have some effects on the ratios like gives you quite.

What's the message that started up in the way and some things like a deduction.

Yeah. It is not I mean, it's not big numbers, we're talking about no but that there are some things that that main petrol that that's why I wanted to do to make it clear.

Okay No no more strictly my point was like should we see you know OCI improving for all warning and if there is any kind of impact and you were very clear on your answers yet so thank you very much.

We're in the market is growing your you will we'll tell you.

Yeah.

I wish I could.

Yeah.

Thank you guys.

Thank you.

And this will conclude the audio questions I'd like to turn the conference over to Rafael to read any webcast questions Rafael.

Thank you operator, so we have some question a question will be a chat I'm. The first one is coming from Greg Mitchell can you. Please discuss the challenges and opportunities for attracting and retaining talent, especially at the highest levels of the company on in their digital strategy.

Sure.

Thank you hybrid any great question.

Obviously, one of the biggest challenge that we are facing strategically and in terms of building what we want to build his talent not only for <unk>, but also for an elite deal done and all the new skills that are required for the transformation of a company like ours.

And being able to compete in the current environment. However.

I do feel comfortable that even though it's a challenge we are taking the right steps our team has been reinforced in recent years with.

Many talents and we're exploring different avenues and actually.

What we've seen through the pandemic and the way we have changed in terms of how we're working now with our newly deployed.

Interbank Eddish way of working which is pretty much remote firsthand.

He is also helping us okay. So first.

Obviously, we have time.

Specific.

HR team.

Targeting.

Attracting monitoring developing and retaining.

Okay. So so chalk so we have a specific team targeted towards digital and analytical talent.

So we're very focused on that than our way of working helped us very much because this talent is looking for TV, but not also that you would also help us to expand.

And what we're looking for ton so today.

We have a setup, where we have people working.

From Argentina, especially specifically for analytics from Colombia.

Cyber security team is the spacer from Chile.

So we're always not longer the bottleneck and because of that and we are pursuing that are strong.

And then.

We are making sure that we have the right projects because as you know this is all project based and we think that the type of projects that we're developing in terms of analytic all things that we're doing on digital solutions that we're bringing to market and the way we are rebuilding.

The way, we have were approaching our hour to two detail nowhere with transformation by one side.

Looking for you other than just growth.

It's providing us with.

Projects that people of this type of skill set.

Hum.

When you complement these two what do we have to build with loving banner, which uses our innovation lab and the attach of support that we're getting from them and also like Victoria languages that industry wide innovation.

Group, we just had a great event yesterday about.

Sure Nelson Intrapreneur ownership.

We have more than 20 projects from the grew up by more than seven from I have faith that ive been going through an integration process and also so.

Doing very different things in order to make sure that those solid fuels challenge.

And motivated and lastly, we continue to focus on our culture No interbank is not there for instance, the number one place to work for according to the breakfast where number one backed by medical we have recently being named number three in Latin America. So that also helps us very much. According to latest work similar to just hold off.

Similar to VC PE team enough to tell you what they've been.

Top couture.

Climate.

In in the region and grew so we think we have all the elements to make sure we continue to work that.

Those type of things, but.

Definitely.

One of the biggest challenges that every company is facing today is.

Talent are under way to tackle that is to go beyond what we can find people.

I hope this answer.

Your question.

Yeah.

We have another question from Jerry why love from White Oak capital what is the split between equity and debt after losses in wealth management business are there any further losses in wealth management that have a crew and should come through in upcoming quarters.

Okay.

Thanks, very much for that question, let me pass it onto Bruno So he can maybe give us a little bit more of a specific I think we've talked with you about these fast.

Bruce do you have any.

Yes.

So approximately I would say 40% of the mark to market is due to fixed income and the 60% due to equity. So that's the answer to the first part of the question.

With regards to what do we expect.

I think it's early to tell certainly the second quarter the markets of <unk>.

<unk> been behaving better so that should bode well for the portfolio, but were only 45 days into the quarter and then you know there's there's.

A lot still to come for the second half of the year, but certainly we should you know if the market behaves better our portfolio should she will do the same and again like I.

I said most of the results from the portfolio are going through P&L. So we could see that that impact.

For the second for the third quarter in the second half of the year.

We have another question from Danielle Marie their phone babies have also piece regarding capital allocation could you consider a buyback program as well as a way to create value for shareholders. Considering that you are having a good some good results and expect to reach.

On auto we over 16% by the companies know what they used to suddenly being value.

One point to our book value.

Yeah, Let me take let me take that question.

Sydney pad I know he's there, but let me get it they get they recently pay their question is related to a buyback opportunities.

Opportunities given our more than 50% early in in the low valuation.

Yes.

Just to talk for a moment.

I can take it.

So thanks, thanks very much for the question, we're obviously always evaluating.

I'm trying to do right now we don't have that at lunch.

So we will continue to monitor.

Both no capital requirements or four months, our bras page on liquidity.

Of the vehicles, where we can do this so far.

So we do think there's an opportunity on that front, we have not yet proposed anything or taken that decision.

Obviously always on the table are being evaluated but we also.

Look at the liquidity of the stock not hold so again with either our IPO in 2019 in order to boost liquidity and enable it to have more show in a trading and so those are balances that we need to take into account before before actually picking up.

Thanks will.

We'll make sure every possible Avenue.

Through operations or through any of of a different alternative.

If it's taken into account in order to make sure that once the volatility and the dust settles on the international conditions in the local conditions.

We can.

Get back to where we think the value of our franchise should be.

Yeah.

We have one more question from Keybanc Voguish from White Oak capital are the commercial loans have contracted year over year with increasing commodity prices.

It seemed that the demand for working capital loans will increase but it does not seem to be the case. So could you comment on the demand outlook on your approach to commercial and working capital loans.

Yes, obviously with.

Again, the economic prospects for the country.

We are not very positive we see that there's a deceleration of the GDP.

Both investor and.

Consumer confidence in the business environment overall private investment in public investment are not picking up so.

We do see a second semester of the year where demand for.

For new launch or or or new projects.

If not there.

However, there are always opportunities.

If we take out the reactive a part of it probably will we will be able to see some recovery.

In the corporate <unk>.

Brian a medium sized enterprises, but not very rich, maybe kilogram complement a little bit.

Yes, I agree.

I just wanted to add that to what the sleep apnea west mentioning that I mean, there is this positive effect of the replacement of definitely a fever knows which he felt nacho.

And remember that I mean, there were almost 60 billion solid injected in loans.

Our financial system for commercial launch in 2020 do you think all the time and those loans are being repaid but there is still not a we for example land 7 billion out of that and we still have three point something billion even in our portfolio. So basically what is happening is that as those loans, which had.

At low rates continued to mature no companies need to replace that.

Cheap funding with new working capital. So that's why when you look at the numbers, excluding those repayments of a fever actually commercial banking continues to grow it will continue to be the case for the rest of the year in a part of 2023.

Yeah.

So at this time I'm showing no further questions I would like to turn the call over to the operator.

And this will cause there appears to be no further questions. At this time I'd like to turn the floor back over to you because that's that for any closing remarks.

Okay. Thank you very much again, thank you everybody for joining us and for joining US also doing our last day first Investor day, we hope to have a little bit less volatility in the coming quarters and expect to see you in our third quarter conference call results.

Right.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.

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