Q3 2022 Intercorp Financial Services Inc Earnings Call
[music].
Good morning, and welcome to the Intercorp financial services third 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 as to the procedure to follow if you would like to ask a question.
Also you can commit the online questions at any time you today during a do you think the window on the webcast and they will be answered after the presentation. During the Q&A session they'd be type of your question in the box and click submit questions. It is now my pleasure to turn the call over to Rafael Borja Huh I've been fired.
Sir you may begin.
Thank you operator, and good morning, everyone on today's call Intercorp financial services will discuss third quarter 2022 earnings.
We are very pleased to have with US Mr. Luis Felipe Castellanos, Chief Executive Officer of Intercorp financial services, Besides Michela Casassa, Chief Financial Officer of Intercorp financial services.
It also had robust holiday Chief Executive office head off Interstate widow, Mr. Bruno <unk>, Chief Executive you folks Who's head of Intel Eagle on Mr. Carlos <unk> Executive Vice President of payments in the financials, how did he says.
It wouldn't be discussing the results of what distributed by the company yesterday. There is also a webcast video presentation to accompany discussion during this call.
If you these English if a copy of the presentation.
Paul.
They have no available on the company's website Ah you face up to combat the two don't know their coffee or otherwise for any reason if you need any assistance today. Please call inspire will open New York two went to 71068 weeks.
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 that 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 that such statements made are based on several assumptions on factors that could change, causing afterwards, so so much really the photo fund accordion expectations for a complete note on forward looking statements. Please refer to the earnings presentation.
A report issued yesterday.
It is now my pleasure to turn the call over to Mr. Luis Felipe Castellanos, Chief Executive Officer of Intercorp financial services for his opening remarks. Mr. Castellanos. Please go ahead Sir.
Thank you.
Good morning, everyone and welcome to our third quarter earnings call.
You very much for attending our call today.
To deliver a good performance this quarter as you will hear during our presentation.
Focusing on recent developments affecting our country, we continue to see an uncertain political environment.
<unk> against especially I guess you are members of the government.
Continue to stretch out in Congress and the judiciary Brett.
We believe these headline news around corruption will continue with no clear path for resolution of these pieces.
On the latest announcements of rating agency last month Fitch ratings decided to keep the sovereign rating of triple B, but changed the outlook from stable to negative due to these political instability and the staging of deterioration of the effectiveness of measures implemented by the government.
S&P global ratings ratified the old Triple B rating with a stable outlook on the back.
Microbalance is unstable public.
On the economic front following widespread dogs of a global recession. The latest survey of expectations by the Central Bank shows they boost GDP growth estimates for 2283 slightly decreased to $2 seven at two 5% respectively.
With consumer dynamics moderating, we I get that.
Starting tighten our underwriting standards in consumer loans, and SME L E in that quarter.
Acknowledging a gradual normalization in cost or at least level off Micaela will touch upon later in the call.
Later today food Central bank with each monthly monetary policy.
While we cannot discuss an additional 25 basis point rate hike as most expectations point to.
We believe we're getting close to the end of the hiking cycle with the policy rate currently at 7%.
The recent slowdown in adult months inflation rate to eight 2% from mid year level of eight eight.
8% is consistent with this reading your inflation expectations for year end and most part of 2053 remain above the central bank's target range.
Related to that how are your interest rate.
Weighted to that sorry, higher interest rates have scope margins this year.
Positive cost only plan largely through the first half of the year. However, accelerated in the second half lowered margin expansion.
Notwithstanding this backdrop, we're happy to continue to see double digit growth in banking and insurance revenue.
The ratio of investment losses, and wealth management and solid growth of our business.
It's important to note that this week were in Houston, the banking superintendents and knowing that the number of monthly mobile transactions in the banking system has increased by 17 guidance since 2019.
The superintendent has qualified.
<unk> growth that has benefit the customers in terms of convenience speed and efficiency in deep mobile banking transactions in the country now exceed the number of transactions in all other channels added together.
Our ability Monday detected by the Central Bank, we accelerate beef with an opportunity to bring more people into the financial system by reducing while reducing the use of cash.
Well.
We are confident that he believes that our culture, our people our efficient operations, our strong capitalization and our strong deep construction continued to be our strength I know the pillars that will allow us to continue to deliver sustainable growth into the future.
Now, let me pass it onto Micaela PURA Vida.
So thank you very much.
Thank you. Thank you very much recently.
Good morning, and welcome everyone to Intercorp financial services third quarter 2022 earnings call.
This time, we will focus on two items of the agenda, which include financial highlights in our key messages and takeaway.
I will start with a brief summary of financial highlights from slide three to 10 the main highlights on.
On slide three.
Three entice ISS had another strong quarter in banking insurance and payments with a smaller negative impact from investments at waste management.
Moreover, this quarter, we had a positive one off impact of 223 million solely due to the accounting revaluation from book value to the price based off the previously owned 50% of ECP interbank, which only impact.
And I know I see now has full control of the company.
We don't need reported earnings came at 613 million coalition deepwater and 291 million when excluding the one off impact.
The present, an important recovery in nicely Ernie.
More than 50% on a quarterly basis, even excluding the one off.
Reported <unk> for the quarter came at 26, 5% and 17, 1% when excluding the one off if you didn't see here again, the strong improvement of this block there.
Banking insurance and payments.
A strong quarter with 21, 4% 46, 8% and 23, 6% respectively.
When looking at the nine month figures reported are niche REIT.
1200, 68 million or 1000 46 million when excluding the one offs in the yearly comparison of cumulative Michelle the above average positive Richard said West My next in 2021 not also offering shoe rash.
And negative in the case of West minus you mean this year I penalizing, the yearly trends, which are extremely positive indications banking insurance and payments reported AOI for the nine months 2022, or five faithful F 18, 2% and was 15, 1% when excluding the one off.
Slightly below guidance, mainly due to the negative impact from investments I really for banking insurance and payments for the nine months are all above historical levels at 19.8% 31, 3% and 28, 3% respectively.
On banking, we had another positive quarter in core activity with some signs of moderation due to the macro scenario.
The shift in loan mix and repricing continued to positively impact me he's blocked up two 5% in the bank and in line with the change in portfolio mix cost of risk has reached one 9%.
It just wasn't very good quarter for retail deposits, which grew 9% in the quarter driving market share up to 14, 8%.
On insurance earnings grew 31% Q on Q with a high ROE of 46.8%, thanks to a strong growth of premiums quarter on quarter and the strong investment income.
Turn on the investment portfolio still high at seven 9% in the quarter.
On wealth management, we saw recovered slightly that continued to be affected by a negative impact on the national portfolio.
Finally on our payment business on one side East Bay continues with the solid growth in business with acquiring fees up 11% on a quarterly basis and 44% on a yearly basis strong growth in number of Americans and transactional volume and gaining share within their volumes in equal measure, reaching 18% in there.
Got it.
Additionally, cleaning tool kit continue with very strong growth of users and transaction as we will see more detail further on in the presentation and we can tell us to benefit from the near future interoperability, which will start end of March next year.
On Monday keep her formats indicators for the quarter information on slides six and seven I would like to highlight the continuous improvement in the quarterly and yearly NIM.
There has been a 20 basis point improvement in the quarterly NIM of five fish driving NIM up five 2% in the quarter and the nine months NIM to four 9% already above our guidance.
On slide eight total recurring revenue for your faith grew 12% on a quarterly basis. Thanks to the growth registered in banking, all 7% in the quarter of 4% and payments, which reduced 5% together with a recovery in revenues from West mine management from a certainty.
Medium need at least two or 3 million positive. Thanks to a higher net interest income and a more limited negative other income.
On a yearly basis the increases in revenues are 22, 15, and 9% for banking insurance and payments as expected.
On slide nine.
Our reported efficiency ratio, if I, you finish west 33% in the quarter or sorry, seven 5% when excluding the one off effect on revenues slightly above our 35% to 77% guidance provided at the beginning of the year, but it would be we've seen our guidance when excluding the impact on revenues from the inverse.
Meanwhile, at the wealth management business.
It is important to note that there is an impact in the reported figures of our face due to the consolidation of VC PE figures starting April this year, which reflects a high and increasing expenses report I stay are included this year and are not considered in 2021 no in my life.
Is it back easy pay effects in the cost base of 2021 expenses I you face grew only 3% on a quarterly basis and 6% on a yearly basis.
Interbank efficiency ratio starts to improve thanks to the positive operating leverage on the quarter driving the efficiency ratio down to 40%.
Revenues have increased much more than expenses during the first nine months of the year, which have increased 10% mainly due to three reasons.
A 17% increase technology costs, and new ventures, which include the technology expenses for our digital transformation as well as new investments in payments, a 9% increase in personnel cost, which is mainly coming from the increase in mandatory employee profit sharing in language improvement of the locales that air lease and a 14% increase in variable.
Costs related mainly to credit cards and in line with the percentage increase in credit and debit cards, so no, but we generate fees and financing volume.
Other expenses have grown single digit reflecting our continued cost efficiency effort. Moreover, we have continued with our branch optimization, reaching a total reduction of the number of branches or 43% or more than 110 branches from the peak in 2016.
On slide 10, we continue to have a solid capital position as evidenced by the ratio of inter bank, but also you can say well don't intangible.
Core equity tier one ratio at interbank is 11, 6% as of September 23, two and total capital ratio stands at 15, 2% well above the industry decided that you're 14, 5%. Despite the slow growth in loans registered this year.
It is important to mention that starting January 2023, we will implement some changes to the calculation of capital ratios in line with new regulation published by different for intended C. D. Here, which is currently being discussed and fine tune for the banking segment as well as some changes in wealth management established by the central.
Oh gosh.
Now I will focus on the six key message, we would like you to stay home from this call on slide 12.
We opened 18, a cloudy macro outlook.
We had another strong quarter in core banking business with some moderation in growth.
Third we continue to work on our two tiered digital strategy showing positive development digital indicators to foster growth.
Yes.
Fourth strong investment results in insurance, yet still impacted but to a lower extent wealth management.
Fifth we continue to see strong growth in payment business and finally, we continue making progress in our sustainability effort with our new 2022, corporate corporate sustainability assessment score of 62, improving nine points from last year.
On slide 13, we are showing the evolution of <unk>.
Kind of some key macro indicators GDP growth continues to be low with an estimate of one 7% for the yearly growth of the third quarter.
Interest rates have continued to increase with the central bank reference rate at 7% and the dollar rate at 4%.
The exchange rate has registered ups and downs in the past week sleek and 3993 99 short list them all out at the end of October and in Flash innovation continuous high at eight 3%.
As of October is showing some first signs of change and trained to be verified in the remaining months of the year.
On slide 15, moving to the moving to the good news from banking, we have continued to see a good performance in activity in the quarter, yet some signs of slowing down in finance. He has continued as discussed during the previous call. I said, we have adjusted our credit underwriting standards and statistic show pockets of slowing compliant which store.
Good to see some impact of the slowdown in the economy and sustained inflation.
Despite these credit cards debit cards turnover has continued to increase year over year or 46% for credit cards and 24% for David touch despite the slowdown in the economy. We continue to see important growth until another as both credit and debit cards, continuing the path of increased penetration in the country with <unk>.
He needs to be low.
This growth has allowed us to increase market share around 100 basis points in the past 12 months for the combined to Nova Thanks, mainly to our interbank benefit program, our increased focus on eco mesh and high growth categories and finally also thanks to our Upselling strategy. Moreover, credit cards.
Sales have increased 11% year over year close to 19, eight to 2019 level, but in a lower pace than the previous quarter due to the tightening of underwriting standards, they usually need it.
For these same resold new disbursement, especially alone has seen a further slowdown when compared to the previous quarter as of the end of September .
Tim there.
Okay.
Loan balances were up 37% when compared to last year and well above 2019 O.
On the SME front, we have also seen a moderation of growth during this quarter, but disbursement continued to be strong in the third quarter and a 34% above the level of last year and are helping this portfolio to grow nicely. During this year, starting from a very low base of less than 3% market share in DC.
On slide 16, we continue to see solid double digit growth in banking revenue, thanks to double digit growth in net interest income and fee income.
Net interest income grew 24% with a strong contribution of net interest income coming from credit card and personal loan fee.
E Commerce grew 28% 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 sustained strong growth in fee income coming from cash management service since in commercial bank.
Other income at the bank what I see.
The year over year and continues to recall there.
All in all total core revenues grew 22% year over year, a very strong recovery in banking revenues, which continues with a positive operating leverage.
Slide 17.
We continue to see a strong portfolio shift to higher yielding loans retail loans reached 52% of the total portfolio versus 48% one year ago. Moreover, credit cards and personal loans with 71% of the total loan book vessels, 16% one year ago.
Active alone represent only 6% of the total loan book.
Down.
13% from 13% one year ago. These effects together with increasing the SME loan book still small and the increasing rates is pushing yield alone what 70 basis points in the quarter and 190 basis points.
Nine 8%, a 10 basis points in the quarter and 100 basis points in the year, reaching 5% risk. Adjusted me has also improved 10 basis points in the quarter and 50 basis points year over year up to three 8%.
We have also seen rising cost of funds as we start to see the combined effect of the rising rates.
And on top of the already a Keystone a newly increased shipping punishment as shown on slide 18.
Cost of funds reached two 8% in the quarter up 60 basis points on a quarterly basis in 130 basis points on a yearly basis, the highest increase in the year you did due to the combined effect of solid and.
We continue to have the best loan to deposit ratio among our peers at 98% as of September versus our system average of 101% as we are preparing to repay the around $450 million bond, which is almost entirely slapped you saw it in January next year.
On slide 19, we have a healthy risk profile with increasing levels of cost of risk in line with the shifting low mix cost of risk in the quarter was one 9% getting closer to pre COVID-19 levels of around 2%, mainly due to the recovery in the retail portfolio, which has reached a cost of risk of three.
One person the.
The NPL coverage ratio of stage three loans, 182% is still above pre COVID-19 levels of 158% and this is mainly related to the coverage ratio of three day lowest which stands at 232% well above the 179% pre call.
On slide 20, we have included a new quarterly evolution of provisions and cost of risk to help better understand the longer trends after and three colleagues. During the last months, we have seen a slight deterioration in the payment behavior of consumer clients, especially in credit cards and personal loans, which is not yet clearly reflected in the quad.
Current cost of risk due to a still high coverage ratio, but which will start to impact cost of risk in the coming quarters bring you need up to pre COVID-19 levels, and maybe even slightly above that given the current macro scenario, if a faint heightened inflation.
Now, let's move to the therapy message on slide 22 of this presentation. Our digital indicators have started to stabilize as more and more people return to know maybe normal behavior. Thanks to the end of the state of emergency in Vietnam.
There is a way to go in moving these indicators.
As of September digital customers reached 70% of our customers who interact with the bank during the last 30 days up seven points in the past year.
That acquisition reached 53% up 14 points from last year and digital sales reached 64% in September increasing 13 points in the last year.
We have continued to see an important number of new digital accounts being opened for both E V. One in business.
At the end of September at 61% of new retail saving accounts were opened digitally while 93% of new business accounts were opened digitally.
M. P. S for digital cashless continues its path to become a top M. P. S. In the next year, reaching 46 points this quarter and stable versus previous phases.
Sure as digital indicators also show positive development with so that insurance at 80% and these are cash nice premiums did that produce these reaching 39% of total premium.
On slide 24, we continue to see important growth in our customer base of 17% in retail and 29% in digital retail customers and 19% in commercial banking customers, reaching more than 5 million.
Okay.
On slide 26, and 27, we are showing first good news with another quarter of strong results of the investment portfolio of insurance with the return on the investment portfolio at seven 9% in the quarter still above average historical levels.
Yeah.
On the wealth management front on slide 27, we have seen a smaller negative impact of mark to market of the investment portfolio. During this quarter, which has helped to improve bottom line results that remains in negative territory.
The only impacting the nine month result of Intel you got so far.
Moving onto payments on slide 29, we are showing the continued strong growth in number of merchants into cancel those volumes.
<unk> increased 16% in the quarter and 65% on a yearly basis, reaching more than 900000 transfer.
Transactional volume grew 11% in the quarter and 41% year over year.
Moreover, e-commerce transactions are gaining share within that transactional volume, reaching 18% at the end.
Sure.
Revenues continued to grow nicely, 5% in the quarter and 9% year over year supported by the increase in the transactional volumes in medicine.
In the short term, we are working to accelerate the growth of our payment ecosystem by having our assets work together towards a called loan strategy, we will focus on increasing transactional volumes offering maritime traditional services.
Such a electronic bill inventory management and cash advances continue to pilot loans to merchants and use easy pay a distribution network for interbank photos as well as a source of fuel.
On slide 30, and 31 clean and to keep continue with their accelerated growth plan.
<unk> reached 9 million users as of the end of October with interbank participation of many bank accounts still above 40% into two users reached $2 3 million.
The number of Americans continue to increase as well or 95% year over year for playing in two times for two gig.
The number of transactions has seen an acceleration in the past to partner.
This water, even more reaching a 34% growth on a quarterly basis for fleet and 43% for two only in the month of October has grown 13% to 16% consolidating the quarterly trends.
We are currently working on getting ready for March 'twenty 'twenty, three when Lee and yes, it will become interoperable thus also too.
This is an important development for financial inclusion in the country with the Central Bank has been correct and which should help to bring more people and merchants into the financial system, reducing cash which continues to be important in the country.
On slide 33 money moving onto our sustainability strategy, we have continued to build upon.
Our focus areas our efforts in the last 12 months has allowed us to improve our corporate sustainability assessment score. This year, reaching 62 point and improvement of nine points, which reflect improvements in all the three areas, our environmental social and governance and economic.
Erez.
Before I begin the presentation, let me now move to the comparison with guidance for the first nine months after a year.
Capital ratios remain at some level with total capital ratio at 15% and core equity tier one ratio above 11% third quarter stands above and in line with guidance.
Second.
Our continued path to recover incorporate ability with I S. S I really to be above 16% in the nine months reported I really wish 18% above our guidance, but what 15% when excluding this quarter one off.
They got in Idaho <unk> for this year is due to the negative impact on the investment portfolio at Intel Eagle eye relief for banking insurance and payments are all strong and are both their single target early in the first nine months of the year.
Including the Mark to market loss fish eye relief or Iff's will be in line with guidance.
In terms of loan growth as of September total loans grew 15% when excluding vivat.
And he still above guidance, while consumer loans grew 21%, but as mentioned during this call. We expect growth to continue to moderate in the last quarter as well and to be in line with guidance.
The recovery of NIM is taking place a little bit faster than expected with nine months NIM already at four 9%.
And third quarter NIM at five 2%, which indicates that we will most likely end up the year above guidance.
In terms of cost of risk in nine months cost of risk is at one 7% with the sorry third quarter cost of risk at nine.
One 9% trending.
Trending up.
Cost of risk, but for year end will be in line or slightly above guidance.
We will continue with our focus on efficiency and guidance for efficiency ratio was between 35 and 37%.
The cumulative nine months efficiency ratio was 36, 6%, but west 38, 4% when excluding the one off of this quarter.
This number is slightly above the upper range of the guidance due to the negative impact of revenues from the investment portfolio of the West management exactly taking out the other side again, we would be in language Guy that's and with one of the best efficiency ratios in the region.
We have seen a nice improvement in the efficiency ratio.
I have faith in the bank in this last quarter.
On Slide 35, let me recap the six key messages of this presentation.
First we are operating in a cloudy macro outlook second we had another strong quarter in our core banking business with some moderation in growth.
Third we continue to work on our two tier digital strategy showing positive development in our digital indicators to foster growth.
Yes.
Fourth strong investment results in insurance, but still impacted to a lower extent in wealth management.
Fifth we continue to see strong growth in payments and finally, we continue making progress in our sustainability efforts.
Thank you very much now we welcome any questions you might have.
Thank you and at this time, we will open the floor for questions.
We will take the questions from the conference call and then the webcast question.
I would like to ask a question. Please press Star then one on your Touchtone phone.
Questions will be taken in the order that they are received.
If at any time, you would like to remove yourself from the questioning here, we're starting to again to ask a question. Please press Star then one.
A webcast theory simply type your question in the box and click submit question.
We will pause momentarily to capello as the questioner.
And our first question today will come from corporate holiday with Scotiabank. Please go ahead.
Hi, Good morning, and thank you for taking my question I have two questions first is related to the portfolio loan portfolio mix.
So we've seen it the exposure to retail loans increased mainly driven by credit cards and personal loans.
So the question there is how how should we think about this mix going forward into 2023 huge retail loans continue growing driven by credit cards personal loans or should we expect a change there.
And the second question is related to payments. So I noticed that the revenue growth was 9% year on year. The revenues on the payments a subsidiary which was materially lower than the growth in the number of merchants and the transaction volume so.
I was wondering there what is driving the difference between the revenue growth and the transaction growth.
Thank you.
Okay, well, thanks very much for your.
Question, Let me pass it all for number one I'm going to pass it onto Micaela.
So she can elaborate a little bit about how we've seen the future.
And then number two I'll pass it onto to Carlo study, but let's let's start with us.
Yes, Hello, and thank you for your question and the mix that you see today in it we know that the weight of consumer and personal loans within the total portfolio is something that that's that should be relatively stable during next year.
The only thing that will continue to change a little bit is that actually I see that Lowe's will fade away. During next year, we expect like most effective at Lowe's to be out of the book by a year end 2023, it's a very small portion of it and it will be there not the overall retail will have a little bit more of it.
Dissipation in the book as it gains M. M weight, that's attracted a portion but what we are planning to do next year of course, depending on what happens with the market used to have like a balanced growth with between retail and the commercial portfolio.
Thank you I know Carlos please.
Yes.
So.
The merchants are already penetrated theory, costumers and part of the market most of the growth in new merchant come from smaller merchants, which obviously have lower and smaller transactions.
So you will see more a larger increase in the number of merchants than the actual income from transactions.
I still believe that it's so this long tail you see very good too two to roll in for Louis because it increases our overall transactions on the use of great Carson awarded so it's in general it's good business, but the margins are much smaller than the growth obviously the impact in the overall numbers as much.
More than it's worth.
Thank you guys.
Understood. Thank you for the comments.
And once again, if you would like to ask a question. Please press Star then one.
Yeah.
And at this time, we will take the webcast questions I'd like to turn the conference over to back way always been fired.
Thank you operator are we have some question from the webcast. The first question coming from.
Greg Mitchell from AVP ventures can you discuss the ways in which the success of the easy pay acquisition informed your M&A strategy going forward. What is your future M&A you strike the especially in payments.
Okay, Let me take that thanks, Greg for you for your question.
Our M&A strategy has been a success.
So not only on these payments instant but also in various opportunities.
For example that the food insurance acquisition was very successful and the ECB, obviously was something that we were looking at.
For some time.
Finally, we were able to materialize it it's a it's an opportunistic M&A strategy basically we as you know look on everything related to financial services or complementary businesses.
U M.
Because we have.
A very broad platform of services. So we're always looking to see what complements.
Our our value proposition so so it doesn't change it.
We're happy that the early the early results.
As we expected on an asset that we already own just 50%.
Yeah.
So so so it doesn't change we will continue to be an active player very disciplined in terms of the things we do.
We are very disciplined in not only in the analysis, but also in valuation.
No.
I think the payment Avenue.
Tim will then Joe maybe looking abroad, probably more intensively.
We'll do before.
Because of the nature of that business, probably are there more opportunities to look.
Internationally. However, that's a very early stage still so we are in the buses off of doing that so for Nancy.
I hope I answered your question.
Thank you. There's another question from somebody else looks like in your new fronts. I mean now you suck.
What exactly does revaluation of men in the easy pay operation.
Okay.
I'm going to pass it onto because basically it's related to we already own 50% of easy pay at interbank. So what we've done is the other 50% of required was done from Iff's. So this revaluation has to do with the 50, the existing 50% debt.
How is your bank debt is being taken.
The accounting.
Oh, the level at which we acquired.
No I'm told me Taylor can you give us a little bit more detail on exactly what's going on there.
Yes, Hello, I mean, just just to give some more information about that we acquire a why you face the remaining 50% of easy pay and the original 50% that Washington in our profession wash at interbank. So basically what happens is that.
Now there is a change in control because I have fish now owns the majority of easy pay and now your first accounting standards require us to reevaluate, let's say to bring the book value that you had on the banking assets to the new value or the market value and that was defined.
With the transaction and the M&A transactions in that increasing value that revaluation actually accounted I. Your first level. It does not impact a interbank idle. So basically what we have seen this month east the reevaluation of the 50% that is professional of the bank, bringing it from.
Book value to the new market value and booking it at Iff's limit that additional value and of course, if reflecting not on the other side of it.
Artists Eden and <unk>.
A mix of a goodwill and other assets, which include the value of the brand E. C itself and also all of the client base and the relationships that we already have with clients. So basically this is what has been and accounted for and is impacting positively both.
And network.
But also assets on the other side.
Okay. Thank you.
Another one.
We have another question from.
Uh huh.
But nanny from White Oak capital.
The good work in banking and insurance has been negated by losses in wealth management do you think things need to be done differentially in wealth management. If yes. Please elaborate on it.
The second question is given the opposite performance in the investment in insurance portfolio and compare it to wealth management can you explain the difference in investment approach in this too.
Okay, great. Thanks, and then for your question.
Let's see the.
The.
Negative impact on E. W. O has been related to the.
Investment portfolio not so so let's break this into two parts first how is the operation going and we're very happy with the way. The operation was born we continue to have a good relationship with our customers assets under management.
So with some volatility.
Because of market conditions. However, we continue to bring in new customers, we're in a very efficient operation.
And that's.
That's obviously a very positive contributor.
In our results then we have the impact of the investment portfolio itself, which is kind of isolated from the operation from the operation. So.
As you know the market condition has been have been very.
Volatile.
Numbers last quarter were negative for the market overall similar to what happened in the previous quarter and so what we've done is a deep review of all of the investments we have there and as I mentioned in the previous call.
We have been investing in these types of asset for many years.
During the last 10 years, the result have been on average above 10%.
This year has been kind of an exemption because of market conditions, but we feel very confident that the names that we have there.
Will a solid.
We'll recover when the market volatility passes by.
What is happening in the Intel you are supposed to intercept is basically obviously the profile of these investments are different one is an insurance company related to loans.
Long term <unk>.
<unk> for annuities.
Barry charter adult basically mainly fixed income to be able to match the assets with the liabilities. The brokerage already book of Delaware has a different profile.
Mark.
Shorter term.
However, the way that the accounting is working is different in both oops.
I have also explained this during the last call in their legal almost 80% of the results are going through our P&L directly as opposed to go into and equity.
Equity at all similar.
Similar to what is happening in Germany, as well and the deterioration in certain fixed income portfolios are flowing through Edwards E. So you don't see it directly in the P&L.
Tell you 80% go through the P&L, So basically why disease, what you get.
That flows through equity.
By what's going on in the P&L.
In the in the in the other companies.
National companies.
The accounting world such us the impact both directly into equity. So you don't see that flowing through the P&L.
What's happening intelligible.
And on the performance on the <unk>.
Investment results mostly.
In Intel.
Intelligible outflow in there. So you are seeing that quality do you know what we do expect that as market conditions may level out this will recover.
We're confident that we will get back to the previous levels of profitability that it'll level, what's used to provide.
Thank you we have another question from Daniel Moore from critical capital.
What are the expectations of the asset quality indicators going forward given that are you facing is growing strongly and credit cards, but also considering a challenging scenario in 2023 do you expect to see a material deterioration of asset management.
Quality indicators in the upcoming quarters and the second question is the NIM is going in the right direction and he's getting closer to the pre pandemic level. When do you think that Ah you face can reach.
2019 levels of NIM, given the growth appetite in consumer loans, the increasing interest rate on Corso funding.
Yeah.
Okay, Let me let me try.
On the first one I have.
Then pass it onto retailers when she can elaborate by basically and yes, let's see where we're growing in consumer finance, obviously this spring.
High risk.
And we are entering into an <unk>.
Third time.
Economic environment for Peru, we do expect that.
We are going to have a deterioration in the portfolio actually is natural.
Because we don't see the economy growing that much next year that will have an impact on the consumer and also inflation is also having a.
Total.
I don't know, even though the expectations are that that she was going to start to normalize at some point mid next year still high levels of inflation have been dumped.
Something that we have that team in there.
Affecting the Peruvian consumer it before so we do expect.
A deterioration of the risk indicators in the portfolio, we have already taken.
We've taken measures to tighten our underwriting agreement however, due to mix and due to these.
The duration is.
A slowing economy, we do expect.
The numbers of <unk>.
Rich levels to go up.
Now, let me pass it onto retail us she wants to complement something on this part of the question and then we'll go over that the NIM question itself.
And thankfully Philippe I mean, I think you mentioned it already and the only thing I would add is that do you.
2022 has seen him an extraordinary extraordinary low level of cost of risk steel. Okay. These because I mean, we have been in the process itself and updating and fine tuning the model after the impacts of the pandemic.
So basically just to give you. An example, no we have introduced a new variable to the model with teeth inflation because previously it was snowing.
And that's impactful now on on predicting the expected loss cost inflation and in Peru.
We had at low levels now so we have been in this process of fine tuning the variables. The model. That's still the coverage has been very high and also this has helped to keep the cost of risk low what we are seeing it we expected I think to even show some of this impact already in the fourth quarter is.
We are returning to pre COVID-19 levels no. So basically we should expect that next year cost of risk. We are still not giving guidance because we have found that I think the numbers, but it should be closer to pre COVID-19 levels, so above 2% no it isn't even and above that because when compared to 2019, we have.
The negative impact of the a sustained inflation now moving on to NIM.
And I mean, we have seen a strong pickup in NIM I mean, the past quarter was even strong there they increasing NIM. This quarter was milder because we start to see cost of funds picking up and more rapidly now because of the adapt and I do not let the increasing in dollar rates on top of a solid rates.
And what we expect for 2023 is a name that continues to gradually improve of course, there's going to be my there because again, we will continue to see the impact of cost of funding as the rate will continue to be high and we will continue to impact the cost of funds we do.
Not expect to reach 2019 levels in 'twenty 'twenty three because even if the portfolio mix will be similar to 2019. There has been some dynamics that have decreased some average yield on loans.
I'd say, a particularly E D in a part of the consumer loan financing and in the corporate loan financing. So we we are not foreseeing I mean, we foresee to continue to improve NIM, but not to match the 2019 during 2023.
Thank you we have a couple of questions coming from Alonso Aramburu from BTG Burklow.
Can you please comment on what's driving the strong growth of premiums in Tulsa Guido.
And the second one is can you also comment on loan and deposit growth expectation for 2023.
Much of the growth of deposits. This quarter is related to our recent pension fund we throw off.
Okay.
Thanks, Hello, So for your for your question on industry ore, Let me pass it onto to Micaela I'm, sorry, do one silo and then.
And then on the second part of the question I'm going to pass it onto retail although I don't know if we're ready to provide guidance, but certainly she can give you some insights on the contango. Please go ahead.
But how does it touch on mute.
Sorry about that.
Ah Okay. Our grocery premiums is caused by growth in several lines of businesses first individual life is growing very strongly compared to last year.
We've seen them in.
Increased interest.
From from people in buying insurance, especially after the pandemic.
Then the bank assurance is also growing very fast and finally, all our digital products are also growing very fast.
That includes sought in the.
Car insurance travel insurance individual life also through our digital channel.
Okay. Let me, let me take the other part of the loans and deposits for for 'twenty 'twenty three mm.
So we're not getting not we're not ready to give guidance, okay, but what what we are building up now in our in our strategic planning and budget process is I mean, a continuous growth in both loans and deposits now trying to gain market share during next year no with some moderation of.
Of course to what we've seen this year, especially because the first half of this year for retail loans was very very aggressive. Okay. So this is I think what I can tell you about next year and Im talking specifically about what's happening with deposits. This quarter I mean, there is a small impact.
Oh from private pension funds, but then cash not all also not only been that gateway to be sincere we have seen a strong increase in <unk> and in all the different product.
But all the plight of deposits we have been doing.
Some changes no we and we were trying to let's say M resist as much as possible with increases in rates now. So we've done also a number of commercial measures now and this is these together is is the main ratio of what we are seeing in the in the quarterly increase.
In the past now in these have come.
And to a big extent in solid deposit snow with this is is very good from a loan to deposit ratio because I mean, not only we have the best loan to deposit ratio overall, but also when you look at the split between the loan to deposit ratio in Salt Lake and in dollar our solid deposit ratio stance.
I mean below 120% and is by far the lowest loan to deposit ratio among the top four banking in the country.
Thank you.
A couple of follow up questions coming from Daniel Mora from critical capital, we saw a strong performance of fees coming from higher credit cards banking services on easy pay it is performance sustainable going forward given the economic deceleration in the upcoming quarters and the second question is what are the expectations for until you go.
In the upcoming quarters, another all 2023.
You expect to see a recovery or a better performance or do you still feel that the numbers could be pressure in the short term.
West coast to be in the performance in <unk> 'twenty two so far.
Okay. Thank you very much let me start by that.
The last question.
We do expect a recovery of <unk>.
And it will be related.
Oh, Yeah as I've mentioned, the operation is going well.
Long as the market recovers.
Which which we expect hopefully the worst is.
Has been backed by however, we're seeing a very volatile market environment, but we do expect.
He wants to recover in line with what we expected.
Around the market.
In the.
The market has behaved well in the beginning of the fourth water obviously.
Obviously, we've seen some recovery however, extremely volatile not yesterday was a tough day for four markets. Two this is a very good day for Microsoft So it's going to be.
Related to how the market evolves no I don't know Bruno do you want to comment something all around that.
Yes, I just wonder have you already touched on this but underlying trends on the wealth management side are have been quite solid.
Despite market volatility for four months all of our client portfolio.
Usually these type of markets.
Take away for from some of the activity investment activity from from clients, but solid trend solid trends in NIM on loans. So the underlying business has been has been doing.
Quite well and we would expect that we will get even better going forward. So the other part you touched upon which is.
It's going to.
B kind of relate it to the market, but as we get further along on the on the type of fed tightening cycle, we would expect volatility to come down and that will be.
A relative positive compared to what we've seen in the last three quarters.
Okay. Thank you Bruce.
Bruno and then on the other part of the question regarding the payments they will lose.
Carlos.
It was she is I think literally patchy.
So even.
Even if the if the GDP doesn't grow as much as it has been growing or consumption.
A large shift from cash to great character or to various carbs as well and we see a lot more transactions. So we would expect in that business to continue to grow there theres, a large shift from cash and a lot.
Today, there's more transactions and gosh, the noncash so still a lot of opportunity in that market.
Yeah.
Okay, great. Thank you.
Thank you we felt for a couple of follow up question from White Oak capital.
One is I've been telling you all what percentage of client assets under management is held on their own balance sheet as assets.
And the second one is what percentage of the mark to market impact in until he was coming from equity equity investments.
Okay. Thank you. Thank you for the question on the first one if I understand correctly.
None basically not the <unk>.
The clients are not booked in the balance sheet of <unk> other than deposits.
Both of them.
But the investments are of budget.
Maybe Bruno can complement this I'm also going to help me with the second part of it.
Yes, that's correct, so and play in the U S. Our off balance sheet and then.
We have currently.
Around $1 billion in client deposits.
Under liabilities in the balance sheet. So that's still on the first part the second part I think was related to.
Sure.
Okay. So I would.
It's a it's approximately 35%.
All the mark to market impact.
I mean due to equity exposure.
Great. Thank you.
Hum.
At this time I'm showing no further questions I would like to turn the call over to the operator.
And we do have one question here and that will come from Yuri Fernandes with JP Morgan. Please go ahead.
Hi, guys. Thank you for the proteins and congrats on the quarter. It. It's regarding UCP I haven't won on dividends like which earnings do you consider for your your dividend payments I guess, they're recurring one right. Given this is a noncash, but just I'm asking on this and also regarding the capital position right because.
I understand you generate a lot of good to you here and I don't see any impact on the bank I I believe at Disney will be related to easy pay as me calibration moving to the holding not to the bank, but just trying to understand like if this goodyear generation should impact your best your basal ratios and if I may of last one regarding the insurer.
We see a very good premium growth as you also discuss it but we see a big a decrease in technical reserves. So I would like to understand a little bit more it seems to be related to annuities, especially all the time our crew off in order to so just trying to understand the difference between you know a lot of premium growth, but they can call reserves reinsurance not growing.
D Crazy high versus last year. Thank you.
Okay. Judy Thanks, very much for your question, let me pass it onto Micaela for one and two are in contango.
Hello could help us with number three.
Good morning jewelry.
Yeah as you mentioned I mean, there would be no impact on dividends from the ECB evaluation on the one off impact that we see in this quarter. As this is only at Iff's level now and he's an accounting impact. This does not impact the bank that does not impact the capital of the bank and the capital.
Our ratio of the bank. So basically there there is no basal.
The impact on capital coming from from FEP.
Great. Thank you.
Yeah.
Yes regarding reserves of annuities.
In reality and reserves are increasing in annuities are they are our our business is a growth is growing.
Reserves are increasing.
I don't see why you mentioned that the reserves are decreasing.
It's here on the financial statement I don't have the complete financial statement you have to break it down with it can be cold reserves by product and it was I guess $11 billion and now it's like 80 90 billion of soldiers on the annuity side.
There wasn't like a 2 billion solid degrees because of time evaluation. So does the number maybe I'm not looking to the right number but it's not the complete financial statements when you'll have to break it almost technical reserves.
Yeah.
Now, let me get back to you because I don't see how it's being reported but let me tell you the reserves are increasing.
Just maybe a mother, how how old are being registered in the report.
Okay. Thank you. So we'll go back later.
Nor is it guys. Thank you very much and good luck.
Thank you Judy.
And this will conclude our question and answer session I'd like to turn the conference back over to Mr. Catastrophe for any closing remark.
Okay. Thank you everybody for joining us today in this conference call and we'll see each other again in our fourth quarter results next year Bye.
Bye bye thanks.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Okay.
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Yeah.
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Okay.
Uh huh.
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