Q2 2023 Intercorp Financial Services Inc Earnings Call
Good morning, and welcome to Intercorp financial services second quarter 2023 conference call.
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It is now my pleasure to turn the call over to Italian Nuremberg of inspire group.
May begin.
Mhm services will discuss its second quarter 2023, I mean, we had a very pleased to have with US Mr. Luis can you pick up the Yana Chief Executive officer of Intercorp financial instead, we see nice niche allowed the SASSA Chief Financial Officer.
Our financial services instead of one shallow about Saturday Chief Executive officer in that say, what do we say ruin a play that you expect could be lumpy sort of in the legal and Mr. Carlos <unk> Executive Vice President and payments had Intercorp financial services. They will be discussing the results excuse me by the company yesterday.
That is also a west coast media presentation to accompany the discussion that you Didnt describe if you didn't receive a copy of the presentation or there needs to be bought they are now available on the company's website I would say that not be downloaded copy otherwise for any reason if you need any assistance today please call inspire.
In New York at 6469 for fuel eight eight Fortunately.
I would like to remind you that today's call is for investors and analysts only therefore questions from the media will not be taken please be advised that forward looking statements may be made during this conference call.
These do not that sounds for future economic circumstances industry conditions, the company's future performance or financial results are set.
Statements made are based on several assumptions and factors that could change, causing authority has to materially differ from the current expectations for a complete note on forward looking statements. Please refer to the earnings presentation on the report issued yesterday, it's now my pleasure to turn the call over to Mr. Felipe Leal any pick up the yen.
<unk> Chief Executive Officer of Intercorp financial services for his opening remarks, you said a coffee analyst. Please go ahead.
Okay. Thank you good morning, everyone and welcome to our second quarter 2023 earnings call. Thank you all very much for attending our call today.
I will start as always by assessing the macro situation in Peru.
We expect our mouths improvement in some of the key indicators for the second half of the year, but we continue to operate on a challenging environment.
The country got off on the wrong foot with social unrest and inclement weather in early 2023.
And our first half of the year with negative GDP.
This has taken a toll in the numbers for the full year I know GDP growth expectations of tremor down to between one and 2% range.
In the meantime, inflation has moderated and hopefully began its journey towards the central bank target.
The currency has recovered some of its value and that has helped alleviate pressure on prices.
Interest rates in Peru have probably peaked and at some point in the second half of the year, we would expect that the central bank to start lowering them lowering them again.
Potential impact of a media phenomenon for later in the year or early 2024 is still uncertain.
So as you know.
It's a challenging environment.
Moving to our business Iff's continues to grow in terms of number of customers and expanding market shares across key business. Like this has fostered a 15% revenue increase this quarter.
47% earnings growth compared to the same quarter of last year when market conditions impacted our results in our wealth management business.
But with only 5% year over year growth in expenses below inflation you guys net.
First to register a fan efficiency level of 35% in the quarter.
And your bank.
We have sustained growth across revenue life, despite the moderation in banking activity.
NIM has expanded further to five 6%.
However provisions continued to increase in retail banking as we are digesting the impact in the Peruvian consumer.
Slower economic growth high inflation.
Actually the effect of the social and weather dislocations previously mentioned.
We expect gross motivation of our consumer book in the second half of the year to continue.
I didn't catch the model, we see good investment returns with a well hedged impediment.
And at least fixed income portfolio.
Company remains a market leader in the annuity business, while jewelry to higher growth segments, such as individual life and retail insurance, which have you importantly increase the contribution to total premiums in the last year.
In general as balance to grow.
In dollar terms and shows the Chilean investments results start to normalize.
Finally, we continue to strengthen our payments ecosystem with ebay, which represent a growing and profitable operation for us that hasn't started to provide new income streams to our business to better customer engagement.
Larger float.
Increases in net interest income.
Going back to what I first mentioned the macro backdrop has temporarily put pressure on risk profile and profitability.
And we have adjusted our guidance for cost of risk in a row. According as <unk> will explain in detail further on on the first topic continuously loan loss allowances provided strong coverage and on the profitability outlook. We're confident that once we move toward the next credit cycle.
We will be on track to achieve our midterm target of around 18% sustainable Roe.
As such we remain optimistic about Peru, and about our defense outlook going forward and continue to build on our key strategic priorities, which are growth.
In Utah and focus in key businesses now.
Now, let me pass it on to Michela for further explanation of our Geos in the quarter. Thank you.
Thank you Kelly good morning, and welcome everyone again today I will review four sections of our earnings presentation, starting with an introduction to our results on slide four.
On slide two the macro outlook.
Slightly improving as shown by the decrease in inflation of the last quarter and therefore, the initiation of the solid rates together with a relatively stable exchange rate at least the leap engine. The new estimate of the central bank for reaching the inflation target of 3% is the first quarter 2024.
Economic growth with the strength of Italian evidenced by the negative trend registered in the last months considers to be the worst for Mr. In a long time and the new expectation of GDP for yearend is below 2%.
On slide three financial performance as it continues to post growth without really impacted by high cost of free for a few months I immersed himself investment we shall see.
Key message in this slide.
There has been a moderation in year over year loan growth or 15% in the first quarter to less than 12% this quarter with a stronger moderation in commercial banking.
Good top line year over year growth continue at 15% this quarter and knee continues to increase with a lower base, reaching five six pressure at interbank.
There has been a further increase in cost of freight coming from consumer lending pushing the bank cost of freight in the quarter to $3 six, especially in the retail cost per fleet.
Two 6%.
The highlights of the consumer portfolio Easter was short of sustained and consistent high inflation as in many other countries a negative GDP growth in the first semester of this year and they will get an economy and the social climate disruption of the first quarter.
We have seen a deterioration in the consumer paint indicators, even the Nashua, Nonetheless covenant ratios remain tempered.
We continue to see good efficiency levels, both that ambition at the bank level as we are strictly monitoring managing costs, especially at the bank with first week of cost income ratio of 37% in this market are still improvement versus last year, mainly due to the good operating leverage.
Let me say February of 14, 3%. This quarter has been impacted by Christophe reached eight terabytes, a shelf investments the show advantageously.
Finally, we continue to register some capital lever with core equity tier one ratio at 30 basis points in the quarter, reaching 11, 4% and total capital ratio at 15, 2%.
On slide four.
Continue to build on our three key strategic priorities, which are first growth, reaching $5 8 million clients in Dubai in growing and 47% year on year.
We did that with a digital retail banking NPS of 48, 72% of our retail clients being digital.
The focus for now two businesses with growing market share in consumer finance up to 81, 2% acquiring business, 44% in annuities at 28%.
Now first on pages six to 10, let's talk about our growing customer base is sustainable.
Well, it's nice sheets with.
Continuous growth of customer base of ice age or 15% year over year in banking, 17% insurance, presenting with management and 53% in statement matches.
On slide seven.
Second fuel reported earnings of 331 million surely are up 24% or 7% on a quarterly basis Augusta is 47% year over year with a narrowly offered deeper into recession.
Quarterly and yearly increases are mainly due to a recovering the investment results in wealth management, it's still research coming from leadership.
They mint has performed nicely despite a decrease in early.
It means that continues to grow and most keep the ice to grow at double digits.
It looks like eight good news is top line total revenues continued to grow double digit or 15% year over year.
Mainly due to the growth reduced were in banking of 18% wealth management recovering from negative territory, one year ago in payments of 8%.
On slide nine another positive is our fee income, which constitutes a source of incremental and diversified revenues growing almost four question year over year in banking, which represents 63% of HD and.
Payment, which represents 37%.
On slide 10, some efficiency levels of iron status at 74, 9% in the quarter.
37, 3% for banking with both ratios being very good mainly thanks to the operating leverage of the bank, which was very strong in the quarter with revenues growing 18% year over year, a fast growing only 3%.
The efficiency ratio of the bank to improve 500 basis points year over year.
On digital I would like to start this part of the presentation by reinforcing and highlighting that we are building, 100% digital solutions for our customer journey, which includes day to day banking savings financial planning, a Nancy insurance wealth management and acquiring for MAGE <unk> and <unk>.
Yes.
On slides 13, and 14 I think this notion of digital indicators continued to show nice strength when compared to the previous year.
We believe there isn't a way to go in when we issued to gauge our progress.
As of June 2023, digital customers reached 73% of retail customers, we do that with the bank during the last 30 days.
I spoke in the past.
Year.
Vehicle sales reached 65% up 2% from last year, and our digital self servicing the gaither cash improved sharply from 75% to 83%.
MTS for digital customers continues.
To become a top issue the net he is reaching 46 points.
Relatively stable versus previous quarters.
We continue to see an important number of new digital accounts being opened for both individuals and businesses as of the end of June 95% of new business accounts were opened digitally.
Insurance and wealth management digital indicators show positive developments as well with digital premium still small, but reaching 94% digital self service, reaching 54% in digital form factor for a month from management, we do reaching 43%.
Yeah.
Now, let's move to the performance.
So much of our four key segments on slide 16 to 24.
Starting with banking in line with our focused strategy, we continued increasing market share, reaching 22, 7% in consumer loans as of June 2023.
$19 four Crescendi Liza loans $15. One question in retail deposits and now four question in commercial loans.
However in line with the increased risk in the portfolio. We have further tightened our credit underwriting standards in consumer loans and small businesses with cash already had an impact on new dish desk.
On slide 18 sustained growth gain across all revenue lines in banking in the second quarter with 18% year over year growth in top line with net interest income growing 20% coming mainly from increased volume and yield on loans.
Fee income increased 9%, mainly explained by an increase in fees from credit and debit cards in other income increased 11% coming mainly from ethics strengthened.
On slide 18.
Interest, earning asset mix and continues with pricing effort.
Yield on loans at 60 basis points in the quarter and 240 basis points from the year, reaching 11, 5%.
I need 10 basis points in the quarter and 70 basis points in the year, reaching five 6%.
Risk adjusted NIM stabilized in the quarter as the increase in yields has been offset by increasing cost of risk.
Consumer loans.
With Nielsen deal has been partially offset by rising.
Funding costs.
Cost of funds with 12% in the quarter up 40 basis points on a quarterly basis, and 180 basis point year over year.
Cost of funds has been rising as market level.
Mainly due to two reasons.
King's migration of retail deposits to more expensive time deposits both installation window left in.
And the higher remuneration to commercial and institutional deposits and solid as rates continue to be high.
No less as rates have continued to increase.
During the month of July we have started to see a first collection of the over 90 deposit rate controllers, which constitutes the first turning points in cost of funds.
Our loan to deposit ratio of 102% continues to be better than the industry seven Thats up 105 question.
Deposits continued to increase its share in total funding in retail deposits market share has continued to increase.
On slide 31, we have seen a pickup in cost of risk up to three 6%.
Mainly due to the impact from the retail portfolio, which has reached a cost of risk of expression.
This increase is mainly focused on credit cards and personal loans as they look at also the public sector.
Employees in mortgages have performed relatively better.
As previously mentioned the high risk of the consumer portfolio is the result of sustained and consistent high inflation in the country are seeing also in many other countries or negative GDP growth in the first semester of each year in the Peruvian economy, and the social and climbing disruptions of the first quarter.
During the first quarter, we granted some credit card customer rescheduling programs in lines with discipline intended she guidelines for the social disruption and El Nino phenomenon.
Those rescheduling, which had a large component of their solutions due to the social and climate in batch.
In the process of materially impacting cost of three already this quarter.
NPL coverage ratio continues to be high at bank at the bank at 107% to 3% and even more in retail banking at 258 session much higher than the 179% level three calls.
On slide 22, moving onto our insurance business, that's actually been a decrease in annuities due to a normalization of the market to pre COVID-19 levels in our market share as we call them in F.
At 28%.
Both individual life and retail insurance business lines, which constitutes high profitability business lines continue to grow nicely year over year or 28% for life insurers and 9% for <unk>, increasing their contribution to total fee.
On slide 23, the Quants that need was done on the investment portfolio gain of $6, 4% below the extraordinary high second quarter of $7 eight session then.
Two inch core portfolio is composed of eight 5% income, 9% real estate and <unk> equity and mutual fund as of the end of June .
On slide 24.
Wealth management.
Is 6% up in terms of asset under management.
<unk> remain in positive territory, although not fully recovered yet.
Well certainly we want to give you a summary of the developments in our payment ecosystem.
We have continued to strengthen.
After the acquisition of the remaining 50% participate in April 2020, we launched the first value added service I would say an integrated solution for being an inventory management for message.
The second quarter as already seen nice adoption of our solution, reaching more than 7000 medicine as of July <unk> monthly fees.
Moreover, during may this year to keep the EC pay combined two loans ECP, yes, a solution targeting micro merchants with either open level QR codes and same day availability of cash.
Growth in medicines in volumes continued ECB Maritimes increased 53% year over year with $1 2 million transactional volumes, new 16% year over year, and Motorola E. Commerce transactions are gaining share within our transaction volumes, reaching 16% as of the end of June .
EC pay represent a growing and profitable operation revenues continued to grow nicely, 8% year over year supported by the increase in the transactional volume and marathon with some pressure on on NBS coming from increased competition.
That continues to increase as well or 9% year over year, reaching.
30 million surely in the quarter.
We have been working to accelerate the growth of our payment ecosystem by having all our assets Wausau, which upon the strategy.
We are focusing on increasing transactional volume offering maxon traditional sandwiches continue to buy low risk loans to medicine aiding us each day after distributional network for interbank photos as well as a cost to increase growth.
As shown in slide 28, we are starting to provide new sources of revenue coming from Krish slope in interbank and from ECB flows, which have increased 32% year over year as well as from greater transactional volumes from micro medicines, which have grown two times year over year.
Thanks <unk>.
On Slide 29, Lee has been accelerated by the new landscape of iterate Babble CTO position.
<unk> reached almost 12 million users as of the end of June with interbank participation at 46%.
Number of medicines continue to increase as well at a pace of eight 4% year over year for clean with interbank participation at 50 feet friction.
And the volume of transactions has continued its strong growth reaching twice. The volume of addition of the same quarter one year ago.
And Yep interoperability has started in April this has been an important development for financial inclusion in the country.
With the Central Bank has improved and we should start to bring more people, who listen to the financial system, reducing the use of cash which continues to be heightened in the country.
Number of transactions for interbank have increased 82% from eight weeks to do.
On Slide 31, let me, let me give you an update on that.
Our operating results for the second quarter in our revised guidance for ROE and cost of risk.
Total capital ratio of 15, 2% and core equity tier one ratio of 11, 4% as of the end of June .
Both our guidance outlook.
Our ROE of $13 share assumption in the first semester has confirmed the trend in cost of risk in investment was shot. Thus we are revising our guidance downward to around 14%.
11, 6% total loan growth and 18%.
Consumer lending growth in both our guidance, though we expect further moderation in the coming months.
<unk> for interbank was five 6% in the first semester in line with guidance.
Cost of risk per byte for banking was three 4% in the first semester.
In <unk>, especially in the quarters.
Both the higher end of the guidance.
Following quarters might continue to be challenging depending on the behavior of the consumer portfolio.
We are revising our guidance upward to two to three 6% for the yearly cost of reach.
Efficiency levers for IEP phase one.
I continue to be good at 34, 2% and 37, 1% respectively for the first semester and within guidance.
On slide 32, we have continued to strengthen our sustainability strategy up on our focus areas. Our latest developments in the environmental strong include a whole hosted events, who planet reached Betty succeeded in addition, our targets for sustainable financial for 2023.
<unk> has been shipped to $500 million aiming to build a more sustainable business.
On the social and.
Our financial services education platform up in demand as well as the launch of ECB, yet our solutions are now contributing with financial inclusion.
Laurel the interbank has been recognized as number one in the medical laser ranking for talent attraction and retention in west certified by <unk>, and a company committed to quality and diverse.
Finally on our governor strong industrial water release, its pressure seen immediately report in line with the tier framework any physical group companies approved our responsible investment policy aligned to the principles for responsible investment.
On Slide 33, let me finalize the presentation with some key takeaways.
First we have seen a first half of 2023 with a challenging macro scenario aggravated by the social unrest and climate factors.
Second we have a growing customer base, 15% revenue increase year over year and market share expansion in our key areas of focus.
Yes.
This is a five to five 6% in banking due to increased yield on loans.
Our retail cost of risk continues to increase on the back of macro scenario.
Strong corporate and retail banking.
And definitely shelter a nomination in insurance and wealth management, driving I used to sharon's up 47% year over year in the second floor.
We have found efficiency levers our usage cost income ratio of 34, 9% in banking at 33, 3% our base much nothing eminent.
Finally, we are revising our guidance for cost of risk in Iowa for this year.
The ASP in the current credit cycle around 18% sustainable ROE remains our midterm targets.
Thank you very much now we welcome any questions you may have.
Thank you at.
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.
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Okay.
The first audio question comes from Aeronef, Stoke up <unk> with Bank of America. Please go ahead.
Thank you.
Sandeep.
Good morning.
Bobby.
Thanks for the opportunity to ask questions.
My first question would be on a sharply.
Could you provide us an update on what could be the impact on El Nino.
I don't know if you'd have been looking to whether institutions, who understand what could be your expectation I don't know if it could be between low to moderate.
And also at the end.
The floods in Peru.
It didn't do materialize early next year, so wanted to double check that with you.
Then we have seen.
Some demonstrations that took place in the country.
A couple of weeks ago, they wanted to remove the precedent to go for early elections.
I believe at the end.
Have a material impact.
But are you hearing the possibility of new demonstrations.
So again any color on El Nino and the potential outlook will be.
I appreciate it.
Then on my second question is on your ROE guidance.
You are lowering it.
For the year in.
You are maintaining it medium term.
At 18%.
But I would like to understand when do you expect to reach the 14%.
Do you think it could be achievable next year.
And what could be the drivers behind it.
It would be a normalization of the cost to raise and probably a more normalized coverage ratio or what are your expectations from that thank you.
Okay. Thanks, very much for your for your questions.
Let's see on El Nino and obviously, we are following it very closely.
Unfortunately, it's not clear yet.
Okay based on what we've been reading in the people we've been made ANZ the same tanks.
The agencies got followed these phenomenon, which saves US a 50 50 cash.
Communities are being extremely Nino is not that high probably where you're going to be a 50% probability of it being.
Low to moderate and Nino.
Again every week, we get new information some of them collide with each other some other key with Gd U S agencies, probably they they.
But more from a really does any of that next week, we get some steam.
From the Australia.
Agency basis, there's likelihood.
So it's pretty it in the past is that temperatures while in the country and in the region are higher than expected. So we are preparing to have something that's another one of the reasons why we are moderating our growth just because we're one of the rate of growth in two fronts, Harley <unk> will elaborate later, but and.
Hawaii.
No high risk segments, where we are our moderating growth, but also we're starting to prepare income.
<unk> called that out usually get affected by it.
If something happens it's unlikely that anyone would happen by the end of the year, which is that discarded.
Number one scenario is probably as you mentioned going to happen in terms of heavy rains and floods if they come in.
Early next year.
Late January or February which is that by yourself. So again, there's not a lot of update there.
You are probably.
Following the news not very concrete Inc. Yet just.
Similar to what the government is doing the government this spring.
Funds in order to reinforce here kind of the first to make sure that that phenomenon to snacks.
As bad as we've seen.
But again, we have to play by ear.
Once we get new information in terms of the the social unrest and political.
And turmoil that we saw at the beginning of the year that cash come down significantly and there has been.
Gum.
Announcement of continued.
People trying to do things that were.
That's very successful.
<unk> happens.
July and specifically the 19th of July .
At the end I think they reported western it was about 20 to 25000 people actually going to long demonstration.
Has not had an impact.
Tim.
Sure.
Personally I think that.
Nevertheless, all of these things has come down significantly I do not expect them tool to peak up however.
Again, it's going to be used dependent if something comes around the government debt.
That.
Make some people push again.
Something could happen, but our scenario is.
That's very helpful. Thank you so far.
So I think that's water under the bridge with the news that we have right now in front of us and hopefully that will continue to be the case and then in the in the <unk>.
Cost of the front desk.
Just briefly.
Again, we haven't worked in detail in the numbers for next year, just lots of things moving.
Moving moving around.
Wanted to come back to you.
The market when we have more clarity what we're seeing in terms of increase of cost of risk.
Has to do with two things.
Mkay dimensioning that first slower.
Slower economy.
But high inflation impacting so many months.
Consumer that's also.
And so why would change there.
Yes.
Probably the impact that we had in the first semester because of these dislocations on that social advanced on that.
Yahoo phenomenon will not repeat let's see what happens with I mean, you also got to watch time about what we see on external factor that affected our already slow growing economy.
So it's going to be probably negative.
Growth or not.
I'm, sorry moderate growth not negative, but starting this quarter and hopefully for the next year. The yoga wrote over one 1% to 2% hopefully picking up at some point next year.
It's not going.
The basic values not to continue going negatively.
And hopefully next year will be also the same inflation should start to come down that should put some relief.
So both.
Again, I don't want a project next year, but there are many macro conditions that shoot.
I'll turn to the positive.
Let's see how they all but.
Not negative growth a lower inflation.
Should have positive headwinds for our operation.
Again, as we mentioned mid term we are very confident that the 18% is achievable given the nature of our business at this stage, where they are the investment that we're doing the efficiency that we're running and the higher cost of risk of this quarter.
Quarter.
It's not only explained by slow growth.
Inflation detached important factor coming from the first quarter Dislocations Edward mentioned that Bosch.
And hopefully that chain.
And I'm not trying to predict but certainly for the last quarter of this year that should be also a water under the bridge in terms of of goals.
That happened in the first quarter very very our Morningstar, partially because we close very very very soon.
The quarter to be events in the first few cash capture.
Significant portion this quarter, probably there's something there for <unk>.
Quarter.
We expect normalization for the latter part of the year and hopefully next year, we'll see.
Probably not as good.
Pre covet level.
But obviously not as bad as we've seen in the first semester of this year.
Oh, perfect very careful we still keep it thank you very much.
No you're welcome thank.
Thank you.
The next question comes from one recall day with Scotia Bank. Please go ahead.
Hi, Good morning, and thank you for taking my question.
So the economic growth expectations have weekend and cost of risk has been higher than anticipated.
However, we are still seeing the consumer loan book, expanding almost 4% quarter on quarter.
Can you talk about how you're balancing the cost of risk with growth in the consumer portfolio and what type of products and clients are driving the growth in the consumer inkjet.
Tumor portfolio.
Sure. Thank you very much.
As you know we are like.
Our portfolio is very geared towards consumer adoption that is perpetual we're not afraid or.
<unk>.
We are familiar with the credit cycle, we know these cabins.
Great title is at least as mentioned is it's been it's been exacerbated by certain external factors, but our our our book reflects our strategy.
Orders from consumer we want to continue being introduced on tumor and were building all of our strategic pillars to make sure.
That is sustainable obviously, we have to be very tactical depending on the situation.
And so what we're doing is we continued to growth we're gearing towards lower risk segment presents some challenges of growth.
<unk> proposition.
It has to come there to to put the brakes in growth is not something that you have a credit grade.
A customer they have their lines.
They use them.
And certain tax situations that we have to be therefore them. Obviously, we have to be very responsible in terms of what we do but part of the growth is our customers existing customers.
Using the line.
Already had.
Consumer direct cash consumer loans is easier to put the brakes on and so and that's all we've seen that.
Moving the collateral.
Its structure of our portfolio a few growing Dorian.
Second half that it has already started to deteriorate probably will continue because again, we've been able to do management of the portfolio, we have and we are gearing towards.
Lower risk segments, we are also boosting our.
Payroll deductible loans airports that will probably help.
In terms of Av.
We want profitability.
But again, it's part of what we've been doing we've been doing for the last 25 years, we've gone through these cycles.
What is good is that.
No.
The drivers of that.
Engagement and relationship with customers remain healthy.
Just a matter of helping them go through these shops.
Top situation and we're ready to do that moderating our risk appetite in the quarters to come.
That's very helpful. Thank you for the comments.
Youre welcome.
As a reminder, if you would like to ask a question. Please press Star then one to be joined into the question queue.
The next question comes from Alonso Aramburu with BTG. Please go ahead.
Yes.
Yes, hi, good morning, and thank you all thank you for the call I have three questions. The first one is on your holding expenses which were.
A little bit larger.
The unusual thing can you just comment.
What exactly happened there.
Second also when it comes to internal legal which haven't reported better numbers, but it continues to show some mark to market losses.
Can you just comment as to what excited me and Mark down.
That has been already fully mark balance so we can see better numbers in the next couple of quarters.
Finally regarding your margins, which have continued to move higher which is good news, but that was the rate cycle likely continues to rates continuing to or will it start to decline a couple of months or so do you expect a similar sensitivity on the way down to what do you think your margin.
And as can be can be more risky.
Thank you.
Okay, Let me let him.
Thank you Alonso on the on the holding is fantastic executives in a particular month.
That structure is very simple basically we don't have lots of overhead expenses, they're only.
Okay.
And what is impacting a small portfolio that we have there as you will remember I've talked to about this.
Many times in the past part of our strategy is not to just invest.
Directly in the chain local fintech or related companies, we do have a small portfolio and.
At the Holdco level, we have deployed funds, it's not that big it's only like.
<unk>.
Investment we've done there among five or six different names if no more than $30 million out of a total asset base of $34 5 million.
So it's a small however.
What has happened in the last quarter is some of those investments which are.
Payment companies or traded related fintech in the U S mainly.
Also.
By the way Sean Actualization also saw total so basically adapted so what all of our portfolio.
Our capital deployed a 25 billion at some point.
During early last year, because the valuations don't come.
And frequently does.
It does wind up with market up at that moment with all what happened late last year and early this year when that new valuations came in there reflecting the actual value of tech companies on a printer company. So so that basically gave us a hit of around 30 plus million dollars soybeans. So that's basically that.
That impact Derrick all the valuations are still above the capital deployment. However, it has gone up because of the cleanliness of what we saw in terms of intake valuations I made went down because of the trends that we saw them pick by reshuffling then that's fine.
Okay.
Five SAR $28 million deployed amongst $5 million to $6 million and went up at some point in the last few years and went down this quarter, reflecting.
Market conditions.
So.
Michigan attitude, we hope that that will not repeat.
In the future I mean, if you go inside because something happens we will report it as well as we thought.
In terms of Intel Evo, let me pass it onto to Bruno So he can give us a better view on terms of.
What's going on there and then I'll come back with the margin question, we can get it.
Yes, so in terms of in Delaware portfolio, there is one effect.
Similar or the same as Philippe just mentioned.
We have a more.
A portion of the portfolio that is invested in funds private.
Private equity funds.
And the effects that we've seen this year, which we would expect to be completely marks are.
In some sense.
Due to some of the effects that were that were felt last year.
The majority of the portfolio is mark to market and so on the fixed income and equity side.
I would say very hard to predict whether this is.
Move up or down it depends on the market.
Because again.
Mark to market and so it would be largely dependent on what the market prices are going to do.
The fixed income portfolio has been rebalanced.
Good portion now that he is going through.
Equity at the <unk>.
Posed to P&L.
But then the equity portion.
The stock then we hold them portfolio.
Not fluctuate.
As market valuations.
Go for the rest of the year, so hard to say.
How much more.
But we have seen like we've been saying we've seen much better performance a year.
Would expect that to.
To be much more stable going forward.
In the portfolio.
Yes, Thank you Bruno alongside forgot to say something actually because the portfolio we have India in.
At the Holdco now that created this expansion is not just investment different to what we do in the insurance company on the worldwide company. These are vintage where we get access to know how we gain access to October right team and your board, we get access to their management to learn what Youre doing in general credit underwriting in terms of building up their pain.
<unk> solution. So it's very strategic for us to have the wagon.
The way, we're learning instead of building something local improve which we believe the market is very limited and we have our own.
Like digital solutions coming from the bank.
Do those investments again.
I've made on each but we do them on the weekend of August .
Just with special Knowhow that we feel we can then transfer in order to put to work into our strategic deployment of Orange. Okay. So we got to the rationale behind those investments there.
And then.
<unk>.
Your last question was in terms of margin, let me pass it onto me get us as you can tell them.
And also we're already.
In terms of rate.
I'd like to highlight.
Different lines because.
Not evident yet what is going to be the net.
And then you'll.
If you see what has happened.
An X ray of rates have been increasing both in consolidation.
In doing that at a very high base not we saw a very a big increase in yield on loans.
And then we have also seen that in terms of cost of funds.
If you feel like the last 18 months cost of funds has got top.
No yield on loans and that is why NIM I forget is the increased that this quarter only 10 basis points. So going forward, what we have defined three actually consolidated in non us.
Because at some point before year end, which is tied to achieve furnished rate decreases.
We should have some.
But in fact in terms of our cost of funding based on the short term and overnight institutional deposits, which are still an important part of our funding. So those should decrease happy in actually in July I mentioned, a little bit about that we have already started to see an inflection point there okay and.
Our asset book more focus on retail it shouldn't be a little bit less cash. It is not something we should try to speak as much as we can with the high rates in the commercial book with a little different because there you recently in terms of fragile we shall keep rates decreasing their inventory now when we talk about doing that.
<unk>.
<unk> has continued to increase not even recently and we still need to see what's happened in the year and so in terms of dull ash next year, we could still see an increase in cost of funds because the full effect of the increased attrition rates of this year now still will impact the cost of funds.
Yes.
They are at an inflection point a niche here in the ratio to decrease in the commercial loan book, where we have the biggest party.
Of note we.
Could see there also are decreasing in <unk>, so putting everything together I am not yet completely sure what is going to happen with new were just running the asking which now and it will depend also of a third component, which is a portfolio mix now because this year portfolio mix has also helped improve the yield on loans.
In Asia, depending on the growth of next year.
We continue to be the case, so I'm sorry, it is not a straightforward answer but I think there are different events moving in different directions now.
Yes.
Okay.
Okay. Thank you for all thank you for that color and if I may.
Okay.
Thank you.
Thank you.
The next question comes from Marlin Medina with J P. Morgan. Please go ahead.
Hello, everyone. Thank you for your potential to ask questions actually most of my questions have been answered, but just a quick follow up on margins.
And I understand it's different for the dollar.
A portion of them for the <unk> portion, but can you provide the sensitivity for every 100 basis points.
It's more.
Yes mission, we have provided this.
<unk>, Okay in the sensitivity has been neutral to positive when the rates were going up okay.
And that looks like that the orix sensitivity of a 100 basis points move, but what has happened in reality has been a little different from that because of the cumulative effect of many increases in rates at the end of the day. It ended up being more positive when we estimated.
So let me come back to you now for the sensitivity now.
Is it a decreasing rate consolidation.
I'll ask because we are still working on that one.
Yellow button lender 19 that Mikael mentioned it before.
Consumer book should be less sensitive.
Especially it's mainly saw ish.
Right.
Pricing there does not.
Correlate to.
The cost of funds.
It's more related to to risk appetite.
So it shouldn't be on the down turn of the rate sensitive.
As the commercial book.
Yes.
That's great.
The speed of the movement in rates have also been impacted by competitive dynamics dynamics will squeak out for for example, this year, we've seen a solid rates in the market being higher than the reference rate because of a decrease the decrease of the financial system.
Also we will have to see also what happens with the liquidity.
Sure.
Perfect. Thank you very much.
Youre welcome.
The next question comes from Andres Soto with Santander. Please go ahead.
Good morning, and thank you for the presentation I have two questions. So first one is related to the payments business. We see result is still under pressure due to the customer or customer acquisition cost.
And I would like to understand.
Based on what you have seen so far.
Has your expectations for the ROE in this business changed in any way positive or negative.
And when do you expect this business to be accretive in terms of ROA for the overall portfolio.
Okay. Thanks.
I'm going to pass it onto to.
Carlos studies, so he doesn't help me by the question by basically.
This business like the payments business, specifically, if you say, we don't see it.
As opposed to like Universal banking or even insurance company.
ROE is not an obsession for us in the payments.
It's more like.
EBITDA, where we're looking at because we're growing and we're depleting local.
Capex there in order to admin expansion.
But Carlos with project provide how little bit more clarity on the specifics on the numbers.
Okay, So hello Andreas.
Philippe said some of the pressure that you've seen is comes from the growth.
We've had in the last couple of quarters, we will continue to look for that growth.
And sorry.
Sorry can you hear me I think I've lost connection.
Now, let's look at how we got here.
Okay. Okay.
So so so.
So you've seen that we will continue to follow that growth.
There has been some pressure on the margins due to increased competition.
But we expected that what we are trying to do is to maintain our share in physical puissance increase the float or the flow to interbank.
<unk>.
Services to those clients study that will increase fee both at the bank and.
<unk> paid and we would like to increase our share in the e-commerce.
Business, which we.
We have somewhere around 50%, probably a little bit higher than 50% and then in a few in E. Commerce, we have probably somewhere around 25% 96% of market share. So we will focus on growing in e-commerce.
We will continue to follow the growth.
And bill the aggregated services that are starting to bring in.
More income.
The how we look at it I don't know if that answers your question.
That's very clear thank you regardless of your trailing sites.
My second question is related to.
Probably a follow up on the El Nino question.
Cost of risk outlook.
I'd like to understand.
To what extent.
Your new guidance for cross sell rates already incorporate the risk of El Nino or.
Indeed, and you name it.
There were licenses or we should see additional cross sell price pressure will be zero. This is moral.
You're bound for 2024.
Yes.
No I would say that the cost of risk for 2023 as I mentioned the guidance.
The effects of El Nino will probably.
Yes.
We probably can if they come early next year as we've seen in the past we've seen.
Usually late January February .
However, part of the growth outlook that we're providing is incorporating.
Some restrictions in some areas it could be heavily affected by any conoco. So we're preparing to portfolio for that but in terms of growth.
One thing that has not come across is that our enterprise and commercial portfolio is behaving very well despite some of the.
Temperature issues that we're seeing.
As you know we have.
Good exposure in fishing, Florida, agriculture, that's behaving very well our hour PGA over their relationship went up to the company.
Work with the most of it was so we are also working with them in order to make sure they are ready for it.
I've done in the past I'm more confident that you won't be able to to go through that process with no issues. Our limited issues. So whatever comes from El Nino will be mostly related to.
Any impact on the consumer around the area impacted by it.
But our commercial book exposure and we're very happy with it even in the downturn of the economy is proving to be very resilient, our delinquency rates higher.
Very low and Thats the way, we managed about nor a little bit more aggressive on the commercial I'm sorry on that on our retail loan book.
More conservative and.
Our commercial book, So we have a more balanced portfolio.
Thank you.
So if I understood correctly.
You you are including the effects of anemia in your guidance are mostly in terms of loan growth not as much in terms of cost of risk, but if we look too fast.
These type of events on your cost of risk and Wayne.
Should we see that being reflected.
In terms of E.
It is a full quarter of this year or in terms of provisioning I mean.
Or or it's going to be once the vantage is in full swing.
Yes, it should be between the first but mostly in the second quarter of next year.
What we can you know what.
She is very different because there.
That was a very different phenomena that we have not seen.
Four.
Many years.
So yes. It's not included this year is probably if it is going to be incorporated in the first quarter or second quarter of next year and that should be it basically because of that phenomenon.
I don't want to invest in that.
That's not the whole year.
What we've seen in the past if you made I think no.
2017 was very strong in the north of Peru at some a portion of Lima, I would say there youll see probably a 1% increase in pdl's related if you figure it will vary.
Specific in certain areas it does not.
I think the whole of the country in the same way.
We expect.
Perfect that's very clear thank you so much.
Thank you.
At this time, we will take the webcast question I will now turn the call over to an Italia from the inspire group.
Thank you.
Question comes from Danielle <unk> from Canadian core capital and the question is what is your expectation for asset quality indicators, considering the growth in the consumer segment and a challenging outlook ahead. When do you believe the banks, who reached the peak of NPS and this change the appetite of growing in the consumer segment.
Hi, Thanks.
Thanks again for Europe .
For your question.
Let's see.
Wednesday.
What is the expectation for growth when do you believe the banquet rich debate well.
We think we've reached the peak this quarter, probably some leftovers for next quarter, but based on what we see going through the book.
We were going through the peak.
In.
It all depends in terms of what we already have in okay, and again, a big portion is what happened with Yahoo, and on the social and vessels.
And the reprogramming of those that have been maturing.
In the in the <unk>.
Last month, so that's that.
I would say the most important portion of what we are seeing this quarter it might be a leftover for next quarter, but probably next fire will be.
Worse.
It was better than this one.
Anticipate numbers, obviously, we cannot predict exactly but what I have seen is that and the changes in the app.
We again.
We are different to our competitors like we have like 50, 556% towards retail. This is what we've been doing in the last 25 years for three years and we'll continue to do so obviously very.
We will go through the credit cycle, we will shine when when things go up and will suffer a bit when when the credit cycle is in the down period, which is what we're seeing right.
Right now we.
Our moderating growth, we're looking to go any lower.
Lower risk segment.
Based on what we're seeing in the economy that change is not going to be radical, but you will see moderation, which already has started we have seen some in this quarter, which means that in July and probably will continue during the latter part of that year. We're always looking for new focus where we can grow we are looking to reinforce our.
Our model is you know tomorrow got mixed up in the whole world because of what happened two to call. It.
On the liquidity that Wes.
Put into the system overall.
So we're working to refine our models and be able to grow again targeting.
A moderation in growth.
Lower segment, one designation with capabilities, obviously, we're going to hold to that.
Emerging.
We've been doing in the past.
The following question comes from Alex some of that runoff from laparoscopy that and the question is I would like to know more details about the insurance.
Currencies are Obi I E.
Why has it gone down in this quarter.
Okay, I think thats.
Great question Alexandra <unk> from that perspective, let me pass it onto two one Kellogg who can help you with that answer.
I'm, sorry, you already mute I think or we cannot hear you.
No.
Now youre backwards.
Hmm.
Let's do something let's go to the next question.
Hello, Salt these technical issues, we will come back to him.
So I don't know moderate or do you have a third question.
Yes, Okay. The next question comes from Greg <unk> from ABB Ventures can you. Please remind us how the digital strategy is improving cross selling both within HR effectiveness. For example, multiple products within banking system and across ISS business segment and for example in banking and payments.
And how significant.
The impact.
Will they impact the only other add backs on that.
Okay. Thanks.
Thanks for your question, let me pass it on to retail.
So if you can help me with that since you have already been looking at that.
Okay. Let me, let me go a little bit into detail of the value that is being generated by the digital strategy, which is something that we try to reflect across the slide presentation that I would like to make it very clear. So the first point is that the digital strategy.
Helping us to increase customer base on an accelerated basis. So you'll have seen that across all business units north double digit growth in banking insurance wealth management and also page now how do we monetize these increased customer base first of all more float in D. C specific.
Be happening already in the different customer segment in retail we have seen an increase in market share of the retail deposits, which is great.
Sustained in time and this is mainly thanks to digital creating more engagement, leading sensor with deep engagement needs being.
Mercury's Adobe the main bank of this client.
They bring look more.
Volume to the third point is more cross trained and here, we can see a lot of things being gross company. So we are working very hard in bancassurance. So for example, not only have all the industry the order rate and insurance products.
Any cross sell to our client base through.
Yep.
We also see a.
There are no other credit and debit card and this is also being reduced.
B groh.
Growing double digit.
Also seeing the growth in medical and consumer and this has a strong impact coming from digital.
And the last point in.
Still care about when is the impact of the rail eventual fish on the numbers and also the <unk>.
As with payment I think some of this is really showing in our numbers first of all Steve.
Our growing almost 10 prescriptions for banking in for payments in this.
Related.
Due to the strategic focus in on payments both for our customers.
Customers are not eligible for near terms. We also have seen the increase in net interest income stemming from decreasing volumes not only deals.
Another theme, which I think is very important to consider coming from the digital strategies that.
IHS has been able to grow the innovation revenues.
Improving the efficiency and showed a marginal acquisition cost of digital for surely slowly. It what we are seeing a growing client base and top line with an improving cost income and now the improvement in cost income does not.
Only because margins are high 90 in the net interest income is growing a lot at equilibrium able to manage these growth we'd need an increase to cost you have seen the numbers this quarter ablation price pressure increasing cost. So I think this is something that differentiate us from.
Our fee issue the readers and I think it's something that constitute the core of how we intend to continue extracting value from our retail strategy in the future.
Okay now I think that's where we can go back to question number two on <unk>.
Yes.
Thanks Alexandra regarding your question.
First of all there's a small reduction in earn interest basically for two reasons one ish.
Yes.
Exchange rates can bounce or dollar holdings produce.
Less interest in solar storms and the second.
The other line also includes some dividends received we received.
The smaller amount of dividends during the period.
Thus far the other line that has also reduces.
We make a loss of $30 billion.
Real estate valuation and those too.
Lunch explains most of the production.
Okay. Thank you I'll tell you.
I don't know if you have any more questions from the moderator.
I said I have no further questions I will return the call today operator.
And there appear to be no further questions on the audio side at this time I would like to turn the floor back over to MS. Casassa for any closing remarks.
Okay. Thank you very much and thank you everybody for all the questions and for attending our conference call.
We'll see everybody again back when we report on their results.
Hi, Mike.
This concludes today's conference call you may now disconnect.
Okay.