Q4 2022 Intercorp Financial Services Inc Earnings Call
Thank you for holding for I S. S fourth quarter Conference call. The conference will begin in a few minutes. We appreciate your patience in the meantime, please refresh your screens in order to update the webcast presentation. Thank you.
[music].
Good morning, and welcome to Intercorp financial services fourth 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 at that time instructions will be given as to the procedure to follow if you would like to ask a question.
Also you can submit online questions at any time today using the window on the webcast and they will be answered after the presentation. During the Q&A session simply type your question in the box and click submit question.
It is now my pleasure to turn the call over to Raphael Borges ovens buy aircrafts, Sir you may begin.
Thank you and good morning to everyone on today's call Intercorp financial services will discuss its fourth quarter 'twenty 'twenty. Two earnings were 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.
He says let me say that one silo southern Chief Executive Officer head of Interstate Udo, Mr. Bruno fairly true Chief Executive Officer of Intel Eagle and Mr. Carlos <unk> Executive Vice President of payments in Telco financial services.
They wouldn't be discussing the results that were distributed by the company on Monday February 13th May be sold saw webcast video presentation to accompany discussion during this call if you're leaving receive a copy of the presentation or the earnings report. They are now available on the company's website or you faced up combat P to download a copy.
Wise for any reason if you need any S. Houston City police called inspire group in New York at 212710, Nice seeks a six 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.
We advise all forward looking statements may be made during this conference call.
These do not account for future economic circumstances industry conditions, the company's future performance or financial results I'll touch. His 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.
Two of the earnings presentation, a report issued on Monday February 13th 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.
Okay. Thank you very much.
Morning, and welcome to our fourth quarter and full year 2022.
Thank you all for attending today's call.
I wanted to start by making a brief summary of our strategy. The one that we are deploying.
Okay.
We have shared with you before our purpose.
It is to empower all peruvians to achieve their financial will be.
We're committed to do so through our four operating business segments.
Our aspiration.
To improve our customer base to increase our customer base by leveraging data and analytics with some risk management skills.
To provide the best digital experience based on operational excellence.
While building, a leading ddos financial bedroom to provide profitable solutions in our key businesses that have a clear strategic focus on payments consumer financing wealth management and life insurance.
To achieve all of these goals, we continue to work on four main pillars.
We are developing a simple resilient and scalable technology platform for current and future growth.
We are becoming a data driven organization with deep understanding of Peruvian and consumer preference.
We are focused on attracting and developing the best talent within our remote first framework that allows us to increase productivity and to reach the best talent retail.
And we want to become a leader in sustainability.
Adopting a stronger and more widespread ESG practices to drive value creation for all of our stakeholders.
This is our strategy and we continue to execute it with a long term vision.
We know that we are operating in an environment of macro and political instability in our country.
However, you should not distract us from reaching our objectives, we are being cautious with our operations given the scenario, we're facing but we remain committed to helping Peru and peruvians to overcome these challenging times.
Regarding GDP growth in Peru, Decembers monthly figure is expected to be announced today, but looking at the bus non stegar's and considering that we have a disruption occurred at the end of last year.
We would expect weakened full year growth levels.
For 2023 show, most forecasts pointing to less than 2% growth this year.
Nevertheless, we remain confident that Bruce fundamentals as well as a lower opening.
And the accelerated trend of D payment provide plenty of opportunities for our business.
As you will see during this call are your Fios continues to show resilience in its core operations. Our Baskin franchisees delivered solid results in 2022 with growth in net interest income and fees offsetting the requirement of higher provisions, while delivering clear improvements in efficiency.
The reinsurance segment continues to recover its investment performance and the wealth management segment posted positive number this quarter after two quarters of losses related to market conditions.
Finally, our payments ecosystem continues to expand and is in good shape to seek further growth.
With this let me pass it onto michela for a detailed update of our results. Once again, thanks very much for opinion article.
Thank you Philippe good morning, everybody and welcome again, everyone to Intercorp financial services fourth quarter and full year 2022 earnings call. This time, we will review our financial highlights and key messages.
Also our guidance for 2023.
As a result, you will see to date.
Very much aligned with the strategy that we are deploying absolutely Philippe has destination with a clear priority on digital growth.
Focus on profitability.
I will start with a brief summary of financial highlights on slide three to 11 of the presentation.
On slide three inside Ics had another strong quarter in banking and payments good results in insurance in the first positive quarter for wealth management, showing a recovery in our investment portfolio with the final quarter of the full year shows very strong core results in banking insurance and payments.
And they've got this year are worth much.
Reported earnings in the quarter came at 408 3 million, which represents a 3% increase in recurring earnings quarter on quarter. It shows an important growth in our U S earnings of more than 50% on a yearly basis.
For the quarter came at 16, 5% still impacted by a low ROE in wealth management of around 8% insurance with 13, 8% and a state usually nation, so quarter, four banking and payments with 22 and 22, 3% respectively.
When looking at the full year figures reported earnings reached 1670 1 million or 1000 448 million when excluding the one off register in the third quarter due to the accounting revaluation from book value due to the price state of the previously owned 50% of each day.
Right.
In the annual comparison earnings showed a decrease of 7% in the reported figure or 20% in my life, which is mainly due to the very strong and above I haven't actually felt on the investment portfolio in insurance and wealth management, Julie 'twenty, one which turned negative in the case of wealth management for 'twenty.
'twenty two.
This specific trend on the return on the investment portfolio you spend a license deal. They all yearly trends reported I believe for the full year of higher face last 17, 7% in West 15, 5% when excluding the one day.
The low normalized.
ROE was mainly due to the negative impact from investments as I really for banking insurance and payments for the full year are all high at 19, 8% 26, 6% and 26, 7% respectively.
On banking, we had a positive quarter in core activity with some signs of moderation due to the macro scenario.
<unk> in low mix and repricing continued to positively impact NIM this quarter up to five 4%.
As already anticipated in our previous conference calls and in line with a change in portfolio mix cost of risk has reached two 5% ending the year at one 9%.
Steve was a very good quarter for the operating leverage of the bank, which drove efficiency ratio down to 38%.
<unk> earnings were shy due to a stronger discipline on pricing and rate base for annuities, which slightly impacted Mike marketshare in arrow of $13, 8% below average level. Despite another strong quarter in investment with return on the investment portfolio at seven 4%.
Wealth management results recovered strongly in previous quarters, reaching a positive result, with a seven 6% that rohit.
In the past the recovery, however, well below sustainable from study <unk>.
Finally on our payment business. One site you see pay continues with the solid growth in business with acquiring fees up 8% on the quarter and 32% year over year.
Strong growth in number of Americans, and transactional volume and gaining market share within our volume any Congress this year.
Suddenly seeing into keep continue with very strong growth of users and transactions as we will see in more detail further on in the presentation, and which should help us to benefit from the near future inner operability and to advance with our payments ecosystem.
Among the key performance indicators for the quarter in the year on slide six and seven I would like to highlight the continuous improvement in the NIM of higher face. There has been a 20 basis point improvement in the quarterly NIM driving it up to five 4% and the full year up to 5% another ratio too.
Highlights is the quarterly efficiency ratio, which stood at 34, 8% going back to pre pandemic levels.
Slides eight and nine total recurring revenue for our U S 6% in the quarter. Thanks to the growth registered in banking, a 10% savings of 15% and the recovery in revenues from wealth management from 3 million to 56 million this quarter on a full year basis, our U S revenues increased.
7%.
Thanks, mainly to the increase in revenues of 15% in banking and 22% in base.
Yeah.
On slide 10, the efficiency ratio for the first 34, 8% in the quarter.
The full year efficiency ratio was 36, 1% it would be 37, 4% when excluding the positive impact from the why now in revenues also it is important to note that there is an impact in the reported cost feed yourself I have faith of 2022.
Due to the consolidation of easy pay figures, starting April which reflects a higher increase in expenses as they are included this year and they are not considered in the base of 2021 normalizing. If you take effect in 2021 expenses at Iff's grew 8% in a quarter.
Daily basis, and only 3% year over year.
This is a very material point I think it makes a strong defense with the reported figures and represent a key if getting shaping element of Iff's profitability. We believe this will be the case as revenues continue to increase faster than cost thus improving the operating leverage of the company further.
In fact 2022 has been a good year in terms of recovery of the efficiency ratio and the positive operating leverage at the banking business, which is the main contributor to the overall cost base of <unk> in the fourth quarter. The efficiency ratio of the bank stood at 37, 9% down for 40 from 40.
Two 2% in the fourth quarter of 'twenty, one the operating leverage of the bank for the fourth quarter 22 was very strong with revenues growing 20% year over year and costs growing only 2%.
When looking at the yearly figures the bank cost base has increased 8% mainly due to three reasons.
The higher increase 21% if the increase in technology costs, and new ventures, which include the technology expenses for our digital transformation as well as new investments in payments.
Affect a 6% increase in personnel cost, which is mainly coming from the increase in mandatory employee employee profit sharing in line with the improvement of the local you got there.
An 8% increase in variable costs related mainly to credit cards, which is below the percentage increase in credit and debit card purchases, we generate fees and financing volumes.
Other expenses half low single digits, reflecting our continuous cost efficiency efforts. Moreover, we have continued with our branch optimization effort, reaching a total reduction in the number of branches for 43% or more than 120 branches from the peak in 2016.
On slide 11, we have a solid capital position as evidenced by the ratios of interbank, but also need to say anything.
Core equity tier one ratio at interbank is at 12% as of December 2022, and the total capital ratio stands at 15, 1% well above the industry average of 14, 4%. Despite the strong growth in loans registered this year.
Starting January 2023, we will implement some changes to the calculation of capital ratios in line with new regulation published by the Superintendency with limited impact for the banking segment and some changes in wealth management established by the Central Bank of box.
Now I will focus on the 16 ish I guess, we would like you to take home from this call on slide number 13.
So the macro outlook continues to be challenging and impacted by the political uncertainty.
Second we had a strong year in core banking business with some moderation in growth in the second half of the year.
So we continue to work on our two tiered digital strategy showing positive development in our digital indicators to foster growth and now you're faced with sustainable profitability.
Boss.
Quarterly recovery was managed me an above average investment results in insurance.
We continue to see a positive evolution in our payments business and finally, we continue to make progress in our sustainability efforts as evidenced by our new 2022, PSA score at 62 point, improving $9 from last year and I figure studies 16 points above the wall.
The industry average.
On slide 14, we are showing the evolution of some of the key macro indicators GDP growth continues to be low with an estimate of one 8% for the yearly growth of the first quarter.
Interest rates have continued to increase with the central bank reference rate at 775% and the dollar rate at 425. However, there has been a pulse of the new increases in the solid rates during the last week Central bank to meet.
The exchange rate exchange rate has reduced their ups and downs in the past weeks and it's now down to $3 81 per dollar at the end of December inflation continues high at eight 5% as of December revamping. The first signs of change in trade due to the disruption that registered by the protest in different parts of the country.
Mainly in the south and the blockage of heightened.
On slide 16, moving to the good news of banking, we have continued to see a good performance in activity in the quarter. Despite continued slowing down in financing growth as discussed during the previous calls as we have just adjusted our.
Our credit underwriting standards in specific sub pockets of low income clients, which start to see some impact of the slowdown of the economy is sustained inflation and now on top of the disruption of December and January .
January Moreover, due to the disruption in payments from clients caused by the protest, especially in the south of the country, but to some extent also another reason joe's without even additional payment facilities to clients by rescheduling some payments in consumer finance into a minor extent also in SME.
Despite these credit cards debit cards purchases.
Continued to increase 7% on a quarterly basis and 28% on a yearly basis.
In the same way balances have increased 8% in the quarter and 29% on a yearly basis in line with the industry.
We continue to see important growth in purchases as both credit and debit cards continuing their path of increased penetration in the country, which is still low.
This growth has allowed us to increase market share around how did basic points in the past 12 months for the combined purchases. Thanks, mainly to our interbank benefit loyalty program, our increased focus on E Commerce and high growth categories and finally also thanks to our Upselling strategy.
New disbursement of personal loans has seen a recovery when compared to the previous quarter, that's registered lower year over year growth of 8%.
On the SME front disbursement continues to be so in the fourth quarter, and a 17% above third quarter and twice the level of last year and are helping this portfolio to gross 19 during 2022, starting from a very low base of less than 3% market share in this segment.
On slide 17, we continue to see solid double digit growth in banking revenues. Thanks to double digit growth in net interest income and fee income net interest income grew 23% with a strong contribution of net interest income coming from credit cards and personal loans, but also from the repricing of commercial banking those fees.
Come good 12%, thanks to the strong growth of credit card fee income.
Due to the evolution of credit and debit card purchases, but also to the sustained strong growth in fee income coming from cash management services and commercial banking.
Other income at the bank recovered and was up 9% year over year.
Total core revenues grew 20% in the fourth quarter when compared to the first quarter of 'twenty one.
Very strong recovery in banking revenues, which continues with a positive operating leverage as previously nation.
On slide 18, we continue to see a strong portfolio shift to higher yielding loans repay loans reached 54% of the total portfolio versus 49% one year ago, and Moreover, credit cards and personal loans, which is 22% of the total loan book versus 18% one year ago exactly.
The active alone as of December represent only 5% of the total loan book down from 9% one year ago.
These effects together with increase in the SME loan book fill small and the increase in rates is pushing yield on loans.
70 basis points in this quarter and 220 basis points in the year, reaching 10, 5%.
I mean 40 basis points in the quarter and 100 basis points in the year, reaching five 4%.
Risk adjusted NIM has remained stable in the quarter due to the increase in the cost of risk.
We have also seen rising cost of funds as we start to see both the effect of the rise in the rates of Dol.
Bonds and the continuous race at Charlotte shrink as shown on slide 19.
Cost of funds reached three 2% in the quarter up 40 basis points in the quarter and 160 basis points in the year.
We have the best loan to deposit ratio among peers.
And 1% or so defender that's our system average of 107%.
On slide 20, as anticipated, we see increasing levels of cost of risk in line with the shift in the low meat, but also from the impacts of the sustained high inflation and the latest disruption in the economy due to the protests.
Cost of risk in the quarter was up to two 5% already above pre COVID-19 levels of around 2%, mainly due to the impact from the retail portfolio, which has reached a cost of risk of $4 seven per se a gay above pre COVID-19 levels.
During this quarter, we have made some adjustments to the calculation of the expected loss, which includes an update of the forward looking variables, but also apply a more conservative view on the consumer portfolio shifting extra criteria from commercial banking retail banking, which resulted in an extraordinary negative impact in retail and of course it.
With one information.
This is the main reason why the reported cost of risk figures show, a six 1% for our retail for retail and a reversal of one 6% and commercial banking for the ratio. The NPL coverage ratio continues to be very high in retail banking at 244%, which is much higher.
And then the hundred and 79% that we had recall.
Now, let's move to the third key message on slide 23, our.
Digital indicators.
So nice strength when compared to the previous year steel there is a way to go in movie. This indicator Chicago I have December digital cluster domestically, 71% of customers, who interact with the bank during the last 30 days.
Six points in the past year.
Digital acquisition reached 15, 7% up 19 points from last year, and digital face with 64% increasing six points in the last year all indicators focus on retail.
We see an important number of new digital accounts being opened both for individuals and businesses as of the end of December 58% of new retail saving accounts were opened digitally while 94 of new business accounts were opened digitally N. P. F for digital customers continues its path to become adopt it.
Yes in the next years, reaching 49 points this quarter, improving three points versus the previous year.
Insurance digital indicators show positive developments as well, we saw the insurance already at 80% and visa cash nice premium digital broad, reaching 39% of total life things.
On slide 25 in language, our digital strategy will continue to see an important growth in our customer base of 18% in retail and 29% in digital retail customer and 20% in commercial banking customers, which more than 5 million customers as of the end of December .
On slide 27, and 28, we're showing improvement in the wealth management portfolio and another strong quarter in the insurance portfolio.
Management on Slide 27 had a positive yet small return on the investment portfolio almost entirely redacting losses from other income and strongly improving rates up to 56 million in the quarter. This has helped improve bottom line results for the quarter, but remain in negative territory in the yearly.
Good news for the insurance segment with another quarter of strong returns from the investment portfolio with right at seven 4% in the quarter feel a ball average historical levels.
Now moving onto payments will slide 30, we are showing strong growth number of Manchester transactional volumes.
<unk> increased 14% in the quarter was 73% year over year, reaching more than 1 million transactional volumes grew 10% in the quarter and 33% year over year.
Moreover, e-commerce transactions are gaining share within our total transaction volume, reaching 17% as of the end of December and in line with our strategy.
Revenues continued to grow nicely, 15% in the quarter and 8% year over year supported by the increasing transactional volumes had mentioned we are also including info related to EBITDA. This quarter to show the improvements registered this quarter, which reached 26%.
And 24% year over year.
We have to be working to accelerate the growth of our payment ecosystem by having all our assets work don't watch a common strategy.
We are focusing on increasing transactional volumes offering merchants additional services continued to pilot low risk loans to merchants and use easy pay as a distribution network for interbank products as well as our fulfillment.
On slide 31, 32 plane and to continue with their accelerated growth.
Blaine, which almost 10 million users as of the end of December with Interbank participation is named bank account still above 40% and 20 users reached $2 5 million.
Number of merchants continue to increase as well or 91% year over year for clean and 65%.
The number of transactions has seen a strong acceleration in the past three quarters.
This quarter is strong relative to the previous quarter has continued reaching a 33% quarter over quarter for clean and 45% quarter over quarter for <unk>.
We are currently working on getting ready for cleaning yuppie interoperability. This is an important development for financial inclusion in the country with the Central Bank has encouraged it which should help to bring more people into the financial system, reducing use of cash which continues to be high in the country technical.
Start next week, and we expect full deployment to be ready in acres.
On slide 34, moving onto our sustainability strategy, we have continued to build upon our focus areas. Our efforts in the last 12 months have allowed us to improve our corporate sustainability assessment score. This year, reaching 62 points an improvement of nine points as we announced during our last conference call.
But now we are also able to compare these results with the Wolf industry average for 2022, which was 46 point. Thus we are a 16 points above that average which reflects improvements in the environmental social and governance and economic areas. Our latest developments and ESG include when they sell.
L. Frank being all four companies in the top 10 positions of great place to work that through 2023.
Further contents and learnings through the mass or financial services education platform with almost 700000 users and in the government has shrunk.
We have received the number one position by medical on top companies both in the reputation category and in the ESG got Avery at interbank forfeit.
Now, let me move to the new guidance for 2023 on page 37.
Let me mention that insurance fees included in the guidance includes preliminary Ifr Ias 17 figures, which are currently under review and which may lead to some adjustments.
The guidance reflects a full alignment with our strategy, which has three clear priorities Wow grow client base and top line in a sustainable and profitable way.
To provide a top experience to clients digitally three focus on key businesses, including consumer finance payments efficient funding insurance and wealth management.
2023 guidance goes as follows.
First we are maintaining the same guidance for the capital ratio, which implies capital ratios to remain at solid levels with total capital ratio at around 15% and core equity tier one ratio at around 11%.
Second.
Continued path to recovery in crop in core profitability with 2023, I S. H R O.
At around 18%.
In terms of loan growth for 2023, we expect again high single digit growth in total loans when excluding large repayments of rack fever led by low double digit growth in consumer loans.
For 2023, we're focusing the NIM guidance on interbank, we expect interbank NIM to be between five five and 6% after close in 2022 at an average four 9%.
Cost of risk for banking is expected to increase in 2023 and to be above pre COVID-19 levels and reached a number between two 6% and 3%.
Finally, we will focus on efficiency, especially on positive operating leverage at this time, we are not ready to include the guidance for the efficiency ratio at Iff's level, which we will do during the next quarter. Once I finish 17 is fully reflected in the fees, but we.
We're also adding a guy does the efficiency ratio of the bank as it is one of the main drivers of efficiency for FX, we expect either a bank efficiency ratio to be below 39% for 2023, and we expect revenues to continue growing double digits, while expenses don't.
On Slide 38, let me recap the six key messages of this presentation.
That's the macro outlook continues to be challenging and is impacted by the political uncertainty.
Second we had a strong year in core banking business with some moderation in growth in the second half of the year.
Third we continue to work on our two peer digital strategy showing positive development in our digital indicators to <expletive> to foster growth are you faced with sustainable profitability.
Fourth there has been a nice recovery in wealth management in the quarter and above average investment results in insurance.
Fifth we continue to see a positive evolution in our payment business and finally, we continue to make progress in our sustainability efforts as evidenced by our new 2020 to see a base call. It 62 16 points above the world industry average. Thank you very much and now we welcome any questions you might have.
Thank you at this time, we will open the floor for your questions first we will take the questions from the conference call and then the webcast questions.
If you would like to ask a question. Please press star one on your Touchtone phone now questions will be taken in the order in which they are received if at any time you would like to remove yourself from the question. Thank you. Please press Star then two.
Again to ask a question please press star one.
For the webcast viewers simply type your question in the box and click submit question, we will pause momentarily to compile a list of her questionnaires.
Hmm.
Our first question comes from Ernesto cable Onda with Bank of America. Please go ahead.
Hi, Good morning, Felipe and Michela. Thank you for your presentation and for the opportunity to take questions.
My first question is related to the monetization of the digital initiatives.
We have seen in the region.
Digital transformation has shifted to profitability versus client growth.
Also we have detected that the monetization is really coming from having digital as positive.
The loans are wild.
Other products like payments digital insurance.
Man the electronic market place.
I I get to build the ecosystem and the relationship with the client, but not necessarily the the key elements that will monetize the clients.
On the other hand, we have seen that Peru is not really a country that is facing the competition from Fintech says, we're seeing in Brazil, Mexico or Colombia. So.
Can you elaborate on how you do your own initiatives with would translate.
Leading to better efficiencies.
Higher or are we at a consolidated level.
And what would be the timeline to.
To achieve that.
And then my second question is a follow up on your twenty-three guidance I'm just how should we think about the opex grows at a consolidated level would it be at the same pace of road, but we saw that year with a double digit or do you think will be bobbing plays Sean clause.
Certain digital investments.
Any color on that will be very helpful. Thank you.
Okay higher Nestor. Thanks for your question, it's really a very profound question that probably will require.
Many minutes or hours of conversation.
But let me take a crack at it.
At least I can go to start with some of your points and I completely agree with you.
<unk>.
In terms of a change in the way some companies or firms are looking at there.
<unk> did all airports, obviously, we've seen what's happened in the market now the search for growth is switching to to profitability or to more specific income generating activities.
Luckily I think that's the view that we've had since the beginning.
As we've mentioned before we had a two tier ddos strategy.
And the first part of the digital starter you have them.
What are you going to pursue essentially too.
To digitize, what we do okay. So basically theres no magic there what we are doing is to be able to provide.
Consumers.
The ability to do in a digital way.
Everything that they do with it they drew Barrymore definitely moodle.
Physically.
Today digital is that has been the the premise around what we're doing we've been doing now so now like 90% plus of the things that a customer can do with the bank for instance.
Can be done digitally.
The focus there has been laser sharp on making sure that that Newport precision has lower customer acquisition cost or lower.
Customer service costs, while providing whether you can go to traditional banking products.
But in the Veeva way.
And we made lots of progress there as you know 90, 171% or 70% plus of our customers do not touch our branch in the restructuring within your gone for the last 30 days or so so that's moving ahead and then we have your part what are we going to the second.
But in all of.
Q2, part of our strategy, which is deploying different things to create Diego system.
Like what we did with Turkey like what we've been doing with open banking connecting with connecting with other players.
There are not financial related so we can complement that.
To provide our our services.
And that <unk>.
As part of the house.
And also kind of.
Two.
Two ways to look at it some are completely new ventures that we are very ready to queue. If we don't see that the traction.
Or or pilot no people, if we don't see that I'll touch on is if you come in what we.
Where we were expecting.
We are not in the game of just thinking someday, we will see how this gets more normal.
We are very disciplined in targeting short term and medium.
Goals.
And analyzing it exactly how we do an example of that is what we did with Ravi for instance, we launched Ravi bonds under certain assumptions and we've been pivoting that airports, we have knowledge killed it because one O Jan de Witte continue pouring money into the airport, but another is to maintain the scale it's more.
Trying to find its market its destiny segment, so far we have not been very successful there.
That's why we keep it as a very small.
He said he would.
You can talk about that anymore, because we still have not been able to reshape that initiative.
But we have got discipline, that's what we do.
And then we have other types like like like payments, where we are investing heavily in the ecosystem because as you mentioned it will be both an enabler of developing better.
<unk> strong relationships with customers and merchants, creating new avenues and new sources for growth for us.
But also it will allow us to.
Tapping new segment.
We have not been talking before like.
But merchants for instance.
So that's.
That's the way we're looking at is we were not known.
No.
Based on the Fintech and the thought of scale will bring everything.
And sometime in the future the money will come in so we do have short and medium term goals.
In order to see how these ventures are a rendering.
Very swaps.
And Youre right that the Peruvian market has not seen lots of disruption from new vintage or regional players I think it's the governments that are coming about I've seen themselves in terms of it.
Some with more.
Positive results in other areas.
But we are getting ready.
As we've discussed before to receive.
Potential competition from local predictor internet's off in terms of the demand they will come to this market and we're very conscious of that is just a matter of time.
What we're doing.
It is possible to receive them when they come due to our proven okay. So I hope that these kind of.
Address your question.
By market appreciation of what we do is very prison, while we are deployed.
Sure.
Do you want to information all the new initiatives of <unk> transformation.
Number two.
In terms of the Opex and I'm going to pass it onto Micaela, who have obviously all the numbers to the two.
2023, she would be able to give you a little more detail. However, anticipate a few measure.
There might be some changes because of some reclassifications coming from IR effort are you for 17, but she can provide.
Provide you.
Not sure of how we're approaching discipline in Opex for for next year.
Hi, Ernesto Thank you for the question and I.
I I I tried to be clear on the first phase during the script, maybe I I I was not able to that we have not had a double digit.
Cost base growth at <unk> in 2022, Okay. In the reported figures. There is an important effect that is that we are including the cost of the payment of easy pay during 2022, but not in the base of 2021 because of the infection in April. So the comparison that you see there are reported figures we showed double digit.
If it's not comparable based on what we have tried to do in the slide that we show in the presentation slide number 10.
And then if normalized basis. So what you see there a iff's level is that expenses are growing if fourth quarter is growing only 3% year over year now with this new base the efficiency ratio of the fourth quarter is 34, 8%.
We're also showing that the bank note, which at the end is the main contributor the full year cost of the bank has only grown 8% knowing I'm, providing the breakdown there that 8% is coming from a 20% growth in everything related to digital transformation payments et cetera.
And all the other numbers have single digit growth. Okay. And this is the reason why we expect the operating leverage for interbank to continue to be positive next year with revenues.
Revenues that will continue to grow double digit because of rates and everything that we're seeing and expenses growing only single digit interact now having said so.
The reason why we are not at this point.
Ready to show you ought to give you a guidance would be if you hit the ratios. How you felt as we have always done last year. The guidance was between 35 and 37% and is that as we are finalizing the implementation of higher FRS 17, there are some.
I mean, the definitional thing, where exactly revenue negative revenues and Costco within the P&L. So whilst we will sort that out no. We will be able to provide that figure, but I think the important message here is operating leverage will continue to be positive for the bank and for and for all.
And maybe if I can guess at all on the on the philosophical discussion about monetization in everything that we are doing and sometimes on this I mean, what we're trying to do here is also try to link it to the P&L lines now because at the end of the day.
If this is going to have an impact on our own E. Either it has an impact of revenues or risk adjusted revenues or so.
So basically I would say that a strong part of the impact of everything we're doing in digital and analytics is coming from an impact on the top line, which comes from not only more clients, but more cross sell and more revenue per clients, both on loans and deposits and I can just give you. One small example, we have been.
Active when the digital opening of SME accounts those accounts.
We have increased substantially in the in the last two three years and the balances that we used to have there I think we show you on the vessel base I mean, what went from almost nothing to apologize I find great millions or less deposit. So daddy float so that that is in and if you want the complete impact of the.
Opening of digital accounts for for SME, but also we are expecting improvement in the risk adjusted figures because everything we're doing with digital and analytics should also have an impact in better understanding the risk profile of clients and the last thing I would say is that on the efficiency front the marginal cost of everything we.
Do we have for sure Hi, <unk>. This is why we have been able to double the client base of the bank not from two point something million three or four years ago to more than 5 million. This year not with costs that has been growing single digit now. So I think those three components are the ones that whenever.
We do it with digital and analytics.
Now to that which at the end should lead to a positive operating leverage and an improvement in the numbers and sustainable earnings.
Hope that helps this whole Super Council recently, Pam you get all that thank you very much.
Okay great.
Yeah.
Your next question comes from the line of Yuri Fernandes with JP Morgan. Please go ahead.
Thank you Mikael I have a question regarding your cost of risk it should increase right.
For your guidance.
You can share like your expectations, maybe you should view that going to a lower GDP and basically expected loss model being a little bit more punitive or HR it seem like a more concerning.
Makes them like consumers consumer segment, having a slightly higher cost of risk I just wanted to understand a little bit where this cost of risk will come from and I totally understand your margin expansion right. So even with this cost of risk moving up.
Yes, there are risk adjusted NIM should still be fine. This year, so like not super concerned, but just would like to understand why cost of risk is running above our historical level and if I may a second question somewhat related to the cost and revenue side.
We are seeing a very strong margin expansion right your guidance implying.
Each 100 bps margin expansion. So your NII. This year, assuming your you know your guidance for loan growth should easily inquiries 20, plus percent right and as I said, we're very cautious on your G&A. So why not like again you are discussing the cost to income guidance I totally understand this but we're not.
Expect a much lower efficient for you this year on the holding level given your NII should be so strong. Thank you.
Okay.
Julie Thank you very much for your.
Question, I'm actually going to pass it onto we delivered overall.
I think she's going to go into details, but it's basically a mix change that we're seeing also we are seeing low growth.
All last year and will continue during the next year.
Expect it to be at around 2% or less for Brazil. This year and inflation remains continues to be high we are not seeing lots of investment coming from from corporate to offer companies. So we do think it's going to be slow year and that will have a toll in the Peruvian consumer of it.
The company.
It's going to be a matter of both mix and no.
Consumer continue growing but also deteriorating macro variables that will have an impact.
The payment capacity of Peruvians, who youre taking off.
Very very low.
Lots of liquidity into the system in the last years, because remember what happened with the pension fund to help from the government post Covid I know that that is also being taken out of the equation. So so so that will have a toll.
Improving consumers and obviously cost of risk if you do.
Throughout the political turmoil that we've witnessed recently the closures of certain regions that are impacted in the south of Peru, where we haven't caught up close to 12% to 14% of our portfolio. Then we have oh what is happening.
Tourism industry and the restaurant industry in the transportation industry is a little bit just structurally made right predictions, but everything obviously points to higher cost of risk given everything what I've mentioned.
And.
So maybe I know I'm going to stop and budget until we got to make a couple of precision of beef.
These required and then to talk about the margin expansion impact operator leverage.
Got that.
Okay.
Hi, Hi, Yuri how are you.
Maybe just a couple of additions to what the separation in the comparison to 2019, Okay, and specifically why we're expecting a higher cost of risk in 2023 versus 2019, I mean first already the mix when you compare it to 2019, putting together credit cards and personal loans.
It already a little bit.
It is getting close a little bit higher than what it was 2019, but the other important component is that the riskiness. We've seen those two portfolio is higher than even Washington, 19, why not because at the very beginning we wanted not to build it that way, but because of the sustained inflation that you have.
Big variables that we didn't have presence in 2019 actually it was not even present in our expected loss models.
Corporate entity I think it wasn't the first quarter of 2022.
I will say this is a big impact because the sustaining facial hasnt been there almost there for 2022 and they have started to have an impact.
We anticipated is already know we saw something in the second quarter in the third quarter, and obviously and they get it on top of that we have the disruption of the protest not so we have been doing in December and in January some rescheduling strain to help clients to overcome this moment now and it of course.
Everything we are doing now well we have some estimates of how that should improve over time.
In the next month, but I think that that they the impact is going to be felt and so, especially in the first quarter and how it evolves in the next quarter of the year of course will depend on what happens with the protest and it would be it would be outcome now everything that we our ambition is on I mean on the life that the situational guidance.
Normalized normalized meaning let's say control uncertainty not that this is why do we have more or less in line now moving onto efficiency I mean it just.
Just to make it clear.
What I am showing the guidance now is solely at the bank level. Okay. So the bank is the one that we have an efficiency ratio below 39 that efficiency ratio for the full year and for the bank was a little bit above 40, okay, and and and that is the result.
Now is this a positive operating leverage.
But what we are not able to show you get Judy if what would happen with with Iff's not so basically I mean conceptually I agree no. If there was a recovery of the revenues of our wealth management demand grows nicely indefinitely grows nicely and payments continue to grow as nicely revenues and the cost do not grow that much there should be.
A positive, but we just need to make sure that when I first 17 things do not move Nassau the level and at the comparison of course is one that makes sense. So I mean conceptually I agree with you we would have to check the numbers were definitely below 70.
Oh, Perfect me, telling us what you think.
Much.
Thank you.
So again, if you'd like to ask a question. Please press Star then one our next question comes from Andres Soto with Santander. Please go ahead.
Thank you was wanting to all and thank you for the presentation. My question is regarding the guidance that you're providing in terms of our own.
You could help us break that down in terms of the oil dependent and it's what what are you expecting for Oh, sorry, I mean, they're all segments. What do you are you expecting for banking insurance wealth management and payments.
Okay. Thank you Andreas that I'm gonna passion to meet strict.
Okay, Andrei and yeah, I'm going to tell you I mean, the medium term that we are expecting that some some of them high touch slightly changed versus the past, but what we are expecting is I mean, the bank to be between 18 and 19%.
We're expecting Intel say water to be around or a little bit above 20%. This though has a very.
A big question, Mark because of higher for 17, Okay. Because I didn't have a strong impact also on the on the network of the insurance business, so that our ROE might be higher, especially for 2023, okay. So that one we will need to review during this conference call.
In theory should be above 20% the same as payments. Okay. So 18, 19, the bank wealth management and payments above 20% and we need to fine tune and ensure that having in mind that then when you put all those numbers together there is a maintenance, let's say on the total number of higher fish, which is.
They're holding not the path there some expenses, which include mainly the expenses the tax authority for the dividend and some minor let's say in operating expenses equal of the $300 million bond that we issued for the acquisition of of Sudan, and also a combination of the first half.
Plastic molding, it's what it needs to be around 18%.
Perfect, that's very clear and I assume that the.
Recovery and what punishment is it's driven by improved market performance.
Please tell us a little bit about that.
That portfolio, both for the property insurance and wealth management, what is the duration and what what makes you what are the risk factors for our base assumption for improvement at Walmart has been not to happen.
And maybe I will pass it first of all we do know for wealth management and then two on shallow for for insurance.
Yes so.
Intangible.
Net income is about.
65% of the portfolio duration of our portfolio today.
Is between four and a half and five.
What to expect.
We think we're getting.
Towards the latter end of the.
On the cycle with regards to rates so that should be.
Beneficial.
As for the portfolio, we've already seen in late last year December and beginning of this year fixed income portfolios.
Covering nicely.
And then so that should be positive and and again will hopefully volatility will come down on the equity side as well so.
It should be a much better year, we'd hope for for the investment portfolio on the wealth management side.
Okay. So.
With regards to interest.
Around 80% of our portfolio.
Income.
The rest of it.
Evenly between.
Equity and real estate and with regard to <unk>.
No.
We are actually hedged.
Both in terms of duration.
Currency with our liabilities remember, we sell long term liabilities.
In the form of annuities.
And they.
They have duration of around.
13 14.
Which more or less matches our integration.
Operational or forceful four fixed income flows.
Yeah.
Perfect that's great. Thank you Antonio.
Okay.
Thank goodness.
Okay.
Your next question is a follow up from Yuri Fernandes with JP Morgan. Please go ahead.
Thank you guys for the follow up just regarding refinancing loans I guess me TV be more active when we heard of this room from other banks, how the provisional works for refinancing walls like noodles to migrate to stage. Two stage three is like if you had to move some loss of that like how should we think about provisions for refinancing.
Thank you.
Okay.
Yes, let me take that and Judy and I mean actually under Ifr S. This clients not some of them already had and a significant increase in the risk profile now so they were already on stage two okay. So the fact that we have rescheduled.
Now on some sales.
Hey.
It's not impacting now provincial.
Of course, if they are then say okay. So what we need to see is the behavior of the refinance clients because the portion of them that they may not be of course, then we'll go to stage III and require a more probably okay, but I would say that a big portion of them were already on stage two now and then we also.
The impact of where we're looking in the expert criteria that we have in in the consumer portfolio, specifically that is kind of a buffer not to cover some of those guys who might not pay the dose and schedule now.
I mean, the volumes that we have rescheduled during December and in January of course, how bigger compared to what we were doing in the monthly figures of 2022 now.
Very far away now from what we did in coffee nowhere, we're talking different dimensions now because this is kind of more localized.
Localizing south of the country and some other clients now so there is some impact now, but it shouldn't be as big if things go back to normality.
No Super clear Thank you Niccolo.
Our next question comes from one recall day with Scotiabank. Please go ahead.
Hi, Good morning, and thank you for taking my question. My question is related to the loans to Smes.
So we saw very strong growth in terms of SME loans diverse meant growing more than 100% year on year.
So oh.
They are related to so what part of this growth is related to ACP.
And the second question related to this would be looking forward to we expect a deceleration and what kind of growth should we expect for it.
Launched in 2023.
Thank you.
Okay. Thanks for your question yes.
Yes.
Growing very nicely in SME during the last year.
Remember that we are coming from a very very small market share of around two and half 3% so plenty of room there.
As Youll recall, we participated actively very actively in a fever for these type of customers that we were able to get connections and get to know them better.
<unk> enhanced our laurels.
Hello.
More around participating and indirectly referendum is way.
Beyond our natural market share.
Those loans have been going through their course guaranteed by the government, but we've been able to capture some and we've got a customer certain clients there.
And that's the result of what you've seen last year, and we expect that to continue in the coming months.
Well, although we havent been a little bit shy in the last couple of months given that currency to Asia.
None of them come from ECB, knowing that that's still a small.
Small project.
And we have there we have a couple of pilots, but basically not significant yet in terms of what we expect for next year is something similar to what we did last year in terms of our overall disbursement.
That's helpful. Thank you for the comment.
Thank you.
At this time, we will take the webcast questions I will now turn the call over to inspire group.
Thank you operator are we have some question from the webcast. The first question is coming from Greg Mitchell phone AVP ventures.
There are two question here can you. Please discuss how the efficiencies of less retail branches has led to efficiencies in head count and the second question is can you share how the structure of your organizational chart will evolve as you move towards the two tiered did you tell us what the E on incorporate new types of <unk>.
Please.
Yeah.
Okay. Thanks, very much hi, Greg. Thanks for your question is that it's a great question actually.
Roughly let's go through numbers, nor in interbank, we we got to a point, where we had close to.
7300, or 400 amp.
Employees today, we're operating with their own 6000 employees. Okay. So that's the direct impact of proficiency. However.
It's not that every brand said, we've closed that gap.
<unk> people, we are hiring new people.
For our call centers.
Don.
Model brings in.
Places, where you need to grow to reinforce your relationship with them.
With.
Customers, but that's all in all the numbers around 1.2 K.
Yeah.
Employees are done.
And what we had where we had the whole branch network okay.
And the organizational chart that transaction aiding question okay.
We are currently operating under let's say two types of organizations I would touch no doubt.
Normal the one that everybody knows.
Once that we still need to see because it.
Hello.
Got it.
We've been deploying.
An agile method methodology of working throughout the organization. So we have that type of organization.
Inside our organization we are deploying.
More this into other areas. We've started by technology, we expanded from technology to dissolve into retail and we continue to spend that nowhere.
<unk>.
With risk management and another actually would have a project called agility at scale and we are starting to deploy.
For this year and then there were operating.
Based on on agile sales teams.
<unk> Ah trial.
All of that noise.
Take a look hopefully will resemble more 45 in terms of the way they operate them.
Okay.
Okay.
And that comes with given the new talent.
More empowerment more at.
Responsibilities.
Two.
Take away a hierarchical structure.
We've become much more of a lead or organization Luckily the crude to the interim Manhattan.
Very flexible not very bureaucratic. So this is helping us go through a transformation and it is a challenge because.
Okay.
Sure.
Moving.
Moving towards.
Agility at scale, if you want throughout our operations.
I hope this.
This answered your question back.
If you want like send me an email we can.
Get a coffee and discussed this and I know, it's probably want to do your questions as well.
We have another question from Aesop Nantong from Prima AFP.
When he saw when will the inter operability cleaned up it take place what kind of services are allowed to offer through the internal capability.
Great well, thanks, very much that's widely.
None in the news, but I'm going to pass to Carlos So he can.
I'm sure it.
Okay.
The interoperability will be starting in April and initially it will be just be to be transfers and there will be a second phase later in the year or in the.
The April interoperability will be between clean and yep.
And then in June July everybody.
It should be able to inter operate.
Through our sinful.
But most well.
Most clients already ear and Jeff airplane. So so it shouldn't be a big change and then the next phase is QR codes, you will be able to read your quotes from each other.
B coming starting July .
So that's kind of that.
It does seem that there was a parallel theres no other services.
I talked about in February .
Your guidance.
The next question comes from Daniel maybe therefrom, Beavis BVA for Walter could.
So you can see there's some extraordinary dividends or maybe a buyback program during 2023.
And hi.
Danielle Thanks for your question and also about our guidance and our <unk> four.
For for next year.
Where our stocks trading now.
We're always.
Looking at ways to enhance shareholder value.
The first drug is.
In executing our strategy and.
Making sure I have.
<unk> growth based on a core strategic pillar, that's why we're doing that in terms of.
Extraordinary dividend or buyback, we're always analyzing that.
Uh huh.
We're not we have not taken any decision each always be underneath that as well.
We'll see where the stock trades and opportunities at.
Obviously, you have to roll it all up by the Booth.
But.
Not so far that's not under discussion or review, although we we usually take a look at different alternatives.
Okay.
The next question is coming from private do you feel about you from profit Bhutto ICP.
Given the most given the central Bank recently, a stop hiking rates how much time do you expect NIM to still be increasing.
How much life Easter between rate hikes on NIM expansion.
Okay, Let me take a drug and then maybe <unk> can complement remember that one of the reasons NIM expanding is because of the switch in the mix.
Again, Covid hit us very hard in terms of the.
The evolution of our consumer book and that's.
Growing nicely and we expect that to continue that will have a tool in our.
Our new competition and then the other part will be increasing.
Really don't know if this pulse doesn't kill them insurance.
Right.
We will take.
The Central Bank.
Yes.
Reports or input.
We gain in terms of traction for for further Rachel all depends on how ablation Abitur not no, but let me pass it onto Micaela to see if she has a little bit more color.
The timing.
And have an issue.
First of all and having in mind that what we're expecting for 2023 is that rates will continue to be high at least the first half of the year.
At some point they will start to decrease.
Pending on which.
Estimates, you'll see it can be the third quarter or it can be in the in the fourth quarter. What we have seen in the past and you can see see ebay in the evolution of me not NIM has improved.
I mean substantially doing last year, but it is just a fraction of the increase in greatest athletes, we've seen or we've had during 2022 more than 500 basis points, increasing in soles and also a very big number in dollar showing the increasing NIM is just a factual stuff why is that is because of course you can reprice.
So of the portfolio with the new disbursement, but not the stock and the same happens with the liability side, where the repricing actually it's a little bit faster. So aim for 2023, we are expecting still needs to improve because the full year.
Effect of what has taken place in the accretion rates in 2022 will become or will materialize in the numbers during 2023 and that is a very big number and then if we have the decreases in rates in the second half of the year, we will start to.
To see some impact first in the cost of funds because of the portion of institutional deposits and and then just after that in the in the asset side, maybe a little bit faster on the commercial banking side, but it will take some more time for the rates on the retail banking to go down with the reference rate.
I hope that helps.
The last question comes from Daniel Mora from Prairie capital.
What would be the straw the yields long growth in 2023, considering the uncertainty in economic deceleration, but you expect to continue to win strongly in credit cards. Despite the risk of higher Npls. What is the guidance of credit card loan growth in 2023 and expectation of Npls.
In this year.
The next question is can you provide further details regarding the construction in annuities during the quarter on what could be the outlook for the different insurance products in 2023.
Okay. Thank you Daniel Mora for your for your question and let's see with do.
We expect to continue growing very tax yes, we do expect to continue growing both in.
Consumer book, obviously at a more moderate pace that we've witnessed in the last year.
Because part of the growth of language, but the composition of our <unk> customers that because of the situations during COVID-19.
Their outstanding balances and we've been recouping that.
I'll tell you as you are aware, we've been more disciplined in terms of cutting underwriting or.
Great.
Improving underwriting standards.
And that kind of fall in growth, especially for the second half.
For the year and we expect that to continue so probably we will continue growing as a guidance.
Hum.
Low single low double digits.
In terms of that on the guidance on cost of risk is there we do expect given the situations because of risk improve a bit and also npls.
Following that path as well for the second part of your.
Question, Let me pass it onto Marcelo So she can talk about annuities.
Sure. Thanks.
Regarding annuities.
First of all let's remember that.
Right now.
In the last five years, most of annuities are related to the visibility of survival benefits.
Kind of annuities retirement annuities.
Our productivity practically nonexistent accurately.
$95 five law, which allows people to deal.
Withdraw their funds from the ASB when they reach retirement, so right now it's mostly.
This ability of survivor benefit.
And what happened in 2020.
And for instance, we won was that market increase significantly significantly because of the.
Grief in.
Death rates in the <unk>.
Contribute to call it.
So we're seeing this year is that.
Sure.
The annuities market is.
Quinn.
Now back to normal to what we had.
In 2019.
We expect.
The.
A level similar to what.
What we have in that year now right now it's being discussed.
Further.
Retirements from DSP, we are not sure yet what this how this might impact or if it's going to impact the <unk>.
The survival benefits.
Insurance.
But again, because we already have no analytics tool for retirement.
Part of it but this has no impact.
Now.
With our other products life insurance.
Bancassurance digital.
They are we expect to continue very high growth. We have seen last year, we were talking about double digit growth.
We expect that to continue we haven't found any.
This deceleration in any of those.
Products.
Great. Thank you Alessandro.
At this time I'm showing no further questions I would like to turn the call over to the operator.
There appears to be no further questions at this time I would like to turn the floor back over to Mrs.
Casassa for any closing remarks.
Okay just to thank you again, everybody for participating to this call and we will see each other again on our first quarter 2023 conference calls.
Say what.
This concludes today's conference call you may now disconnect.
Yeah.
[music].
Yeah.
[music].
Okay.
[music].
Okay.
Yes.
[music].
Right.
[music].
Yeah.
[music].
Okay.
[music].