Q2 2023 Credicorp Ltd Earnings Call
Assign a 40% probability that El Nino sale will be weak during the summer of 2024, 36% it will moderate and 11% that is will be as strong.
In his last speech of July 28, Brazilian Woolworths, we communicated the importance of private investment as a tool for economic growth and development moving a part from the previous government. This time, she announced for instance that one $8 billion worth of infrastructure projects will be awarded.
In the second semester through premium, Brazil, the investment promotion agency.
We're also macroeconomic fundamentals remained robust with low public debt and niche international reserves equivalent to 33 of GDP and 29%, respectively. These governments ability to unlock and mobilize private and public investments will be key moving forward.
<unk> please.
BCP results were favorable despite this context.
Regarding the key quarter dynamics NII.
NII increased 0.9%, despite a slight 1% drop in loan volumes. This drop reflects a downturn in economic activity, primarily in wholesale banking on more conservative origination guidance in retail.
Our NII reflects a disciplined approach to pass throughs and our ability to leverage a transactional funding base to mitigate racing funding cost BCP fee income rules on the back of higher transactional levels, particularly through digital channels and deal with provisions in consumer loans.
And credit costs remained at high levels as our recessive high inflationary environment in the first half of the year.
The payment capacity levels sub segments, which are more levered and have unstable jumps. Additionally, SME <unk> segment drove the uptick in provisions on a year over year basis growth in <unk> fueled by a 29, 6% increase in NII. This evolution was.
Driven by raising interest rates and five 2% increase in the structural loans, which was driven primarily by a 10, 9% uptick in retail banking loans through SME.
These cards and mortgages.
Loan loss provisions increased 177, 8% over a low base. Additionally growth was driven by an increase in provisions for consumer loans credit cards, and SME, which were affected by macroeconomic conditions.
<unk> expenses grew eight 3%.
Driven mainly by <unk> and marketing expenses and investment in disruptive initiatives. This increase was partially offset by a nonrecurring tax expense reversal. Consequently, bcp's efficiency ratio dropped 420 basis points and stood at 37% y.
ROE reached 24, 2% at.
At BCP, Bolivia, our risk appetite remains low it seems at the beginning of this year U S. Dollar reserves in Bolivia Central Bank has dropped materially and banks have daily limits in U S. We drove regardless BCP, Bolivia knit team remains a stable mix.
And exercise.
Yes, I think continues to progress towards monetization, but it will assuming its medium term targets one to be the main payment network in Peru segment.
Present in the Lady luck to hear payrolls, and finally meet the financial needs of <unk>.
Features launched in the last 18 months has allowed <unk> to continuously grow its active user base engagement and cogeneration.
Monthly active users reached the 9 million Mark at the average mantra transactional level for this group has rising from $14 nine to 23 five in just one year currently $5 2 million users generate income.
Our main monetization drivers continued to bear fruit in the past six months monthly mobile top up transactions grew 20% to total 11 million transactions in the end of June in just three months utilities payments have grow four eight times and it stands at the end of June .
<unk> and $2 2 million transactions through yet the promos the growth merchant volume grew four eight times to ascent and 25 million solid at the end of June .
In the last six months monthly disbursements of micro loans rose 18%.
India formation context unit economics are moving towards breakeven the revenue per active user per month is growing and has started to fight shoulders widen the cash cost per active user per month is stood up for four <unk> a day.
Next slide please.
Meanwhile, cost profitability began to recover this quarter as challenging as some early this year.
Quarter over quarter basis.
Net interest income rose four 6% after a structurally loans the sportsman recall there from a difficult first quarter disciplined loan pricing.
I am also deemed platform and <unk> in the funding cost. Consequently, NIM increased 80 basis points and stood at 13, 5% OLED equal rose two 5% after the bank assurance fee level roles alongside growth in disbursements.
<unk> provision expense dropped slightly after reasonable lives, we're fine tune to better reflect client payment behavior, but remain high due to a deterioration in payment capacity.
From a year over year perspective.
<unk> rose, 1% to an uptick in restructured loans and interest rate pass throughs, which mitigated the impact of racing funding costs.
Noninterest income Rose 26, 6% due to the same factors are rules as those outlined in the quarter over quarter to nine <unk>.
Provisions rose fueled by a downturn in payment performance and a more challenging macroeconomic outlook.
Operating expenses rose five 9% and the efficiency ratio is stance.
<unk> 52, 4% finally, our ROE rebounded to nine 5% in the quarter.
Bianca, Colombia is facing high inflation high funding costs lower interest rate ceilings, and a deterioration in economic expectations. We have adopted our strategy Accordingly, and we believe that untapped potential exists in the Colombian Microfinance Mark next slide please.
Our ROE at Grupo Pacifico was high this quarter and <unk> 30.
<unk>.
32, 1% driven by the life business rewarding quarter over quarter and dynamics net income deteriorated on the back of a lower net gain from associates. This evolution reflected a downturn resolve for corporate health insurance or we had a particularly high base last quarter year.
Year over year profitability was driven primarily by the life business and secondarily by property and casualty in the life business. The insurance underwriting result improved due to an upswing in income from insurance service through pensions life group and credit life, which benefited from better prices and more.
<unk> volume dynamics reduce expenses for claims also contributed to this improvement in.
In the property and casualty business. The insurance underwriting result, rose five 1% through an improvement in medical assistance result, which was partially offset by a downturn in the resort for cars next slide please.
As you know our strategy is to focus on recurring business is to improve our ROE in the medium term nonetheless.
T can profitability in recent quarters has mainly been driven by nonrecurring income on a quarter over quarter basis income was boosted primarily by the Treasury Department is madness, ASB cash surplus structurally portfolios and short term investments in terms of procuring businesses assets under management.
Wealth management grew four 2% and drove income grew while the assets under management level in the asset management business remained stable year over year income increased 32%, driven mainly capital markets business, which reported gains on the appropriate added fixed income portfolio in Colombia on site.
The Treasury Department, we generated air needs to be at the same dynamics seen quarter over quarter regarding securing businesses wealth management assets under management grew 9% and drove income ROE while assets under management.
<unk> contracted 17% driven by outflows in third party funds and income decreased slightly as these outflows generates lower fees.
Next slide please.
Okay.
No we will look at <unk> consolidated dynamics on a quarter over quarter basis, our restructured loans measured in average daily balances fell <unk>, 6% or increased zero percent.
Percent with FX neutral growth in BCP retail banking on Mi band four was offset by a contraction in wholesale banking at BCP.
Our deposit base constructed three 5% or one 8% with FX neutral. This evolution was driven by a drop in low cost deposits, which was partially offset by growth in time deposits on an a structural year basis as total loans increased five 5%.
<unk> and governance daily balances fueled primarily by retail banking at BCP and <unk>.
Deposit balances dropped two 7% or <unk>, 2% with FX neutral low cost deposits filing system wide.
Our market share has rising to 46% and currently represent 65, 1% of our total deposits next slide. Please now let me explain correne on dynamics.
<unk> rose two 3% quarter over quarter, and 15% year over year on the back of NII NII grew two 3% quarter over quarter, and 21, 5% year over year different salt was attributable to volume dynamics the skills early and to discipline in pass throughs in.
As context, the net interest margin rose 18 basis points quarter over quarter, and 110 basis points year over year to stand at 6.2% reset just need increased marginally to 456% we analyzed the results foreseeing going on faith transaction.
It is important to note that both lines has been affected by our strategy at BCP, Bolivia in which we have adjusted our fee framework for foreign transfers to offset the impact of FX transaction due to restrictions on foreign currency availability. If we exclude this impact fee income increase.
Four 1% quarter over quarter panel ASP seeking transactions, while the resolve of ASX transactions remained flat on a year over year basis, excluding Bolivia fee income contracted three 3% driven by lower fees in the pension business and the elimination of inter city fees.
Next slide please.
Let's look at the dynamics of a structurally nonperforming loans as indicated versa.
<unk> events in the first quarter of the year, coupled with a contraction in internal demand high inflation and high interest rate have notably impacted client payment performance and consequently portfolio quality. This quarter and this is scenario on a quarter over quarter basis ROE in a structurally nonperforming loans was driven.
By Nevada after loans through program in the first quarter delinquent by SME team at where low ticket riskier sub segments reported poorer performance in credit cards, and consumer loans, where the debt service capacity will narrow segment fall due to over indebtedness and a stable employment.
Aforementioned was partially offset by a sale of our delinquent portfolio in the energy sector in wholesale banking, which has been previously provision.
On a year over year basis, extraordinarily nonperforming loans volumes increase due to an uptick in refinance collateralized loans in the retailers' date and tourists sectors served by wholesale banking the evolution of our nonperforming loans in retail banking in <unk> was driven by the same factors of those seen in the quarter analysis and was partially.
Offset by the sale of our delinquent retail banking portfolio during the first quarter of the year in this context, the structural coverage ratio stood at 108% to analyze our structural coverage ratio is important to review the NPL portfolio mix in terms of unsecured uncollateralized problems.
Please refer to appendix two or more detail.
Next slide please.
Moving on the provisions and the cost of risk we have consistently indicated that our cost of risk will increase as we shift our loan portfolio mix towards small retail Additionally cost of risk of quarter increase.
<unk> payment capacity has been impacted by macroeconomic conditions provisions in consumer loans and credit cards of BCP SME loans will remain at high levels.
Recessive high inflationary environment in the first half of the year affected the payment capacity of clients at BCP vulnerable sub segments, which are more leveraged and have stable jobs were the most impacted while at Milan clients were severely hit by the first quarter events. Additionally, SME business segment at BCP drove the FTE.
Provisions quarter over quarter in this context, the structural cost of risk is at two 3%. We are closely monitoring our asset quality metrics have refined our client segmentation by risk profile and have gradually implemented stricter origination guidance for individual SME <unk> on me.
Nonetheless, the impact of recent measures on asset quality metrics will take some time to fully materialize.
We will do this.
This page the evolution of efficiency on an accumulated basis to isolate the impact of seasonal effects operating expenses grew 11, 2% in the first half of the year driven primarily by core businesses at BCP and disruptive initiatives at political level at BCP core businesses fuel grew.
<unk> interfaces through an uptick in expenses related to an increasing usage of cloud and client become more digital more usage of IP applications licensed software to enhance capacity and improve security and.
Move to attract more specialized digital talent marketing expenses, mainly driven by Fabian Tyson to boost deposit in digital sales and growth in programming expenses.
The formation dynamics were partially offset by a nonrecurring tax expense results.
Expenses back disruptive initiatives are creating global level increased 70% to ensure market leadership in the long term operating leverage remains strong at BCP stand alone at the bank operating expenses remained under control, but info line.
Slightly lower base.
Our efficiency ratio stood at 44, 4%. This first half down 310 basis points compared to last year and driven by high income at BCP and Pacific Nixon.
Next slide please.
Similar to the previous quarter record quarter profitability was driven by strong results in our wholesale banking and insurance businesses. Our ROE this quarter expanded by 130 basis points year over year and stands at 18, 6%. Meanwhile, our ROE for the estimate.
That was 18, 9%.
Note that.
We have benefit from relative low effective tax rate. This semester due to the strong performance of our reinsurance business and due to the fact that tax exempt interest income accounted for the largest share of the revenue mix at BCP. All in all these results are a testament to our resilience and ability.
Need to adapt to challenging circumstances now I will move to our updated guidance next slide please.
Our updated macro scenario for 2023 is now a GDP growth of around 1%, which incorporate this scenario of a week to moderate as Nino for stable at year end regarding loan growth, the social and climbing events of the first part of the year, coupled with a sluggish.
Total demand are taking a toll on our borrowing.
Borrowing capacity, particularly in our consumer loans credit card and SME segments at BCP. Accordingly, we adopted a stringent origination guidance in those segments. In addition demand for loans in wholesale banking has weakened which reflects a downturn in business activity. These dynamics led to lower expected a structurally.
Loan growth, which now extends had between one and 4% measured in average daily balances.
Our NIM guidance remain unchanged between five eight a six 2%.
Higher than initially expected cost of funds will offset the positive impact of a higher yield from the loan portfolio, which was triggered by a reduction in wholesale loan share in the total mix.
We expect the cost of risk, which turned between two one and two 5% largely driven by the impact of the macro conditions on BCP performance note that BCP and <unk> are likely to have the Belgian dynamics on this front during the second semester as be vanquished started its cycle of loan detour.
Operations at Crazy restrictions before BCP.
We achieved solid efficiency levels in a context marked by an acceleration in investment to develop future businesses.
Our ongoing efforts to begin to expand Skus are expected to partially offset the aforementioned income headwinds and result in an efficiency ratio between 45% and 47%. Finally, we'll remain maintain our ROE guidance of around 17, 5% by now.
Knowledge downside risk associated with asset quality deterioration and El Nino most deal with these comments I would like to start the Q&A session.
We will now begin the question and answer session.
That's a question you May press Star then one on your Touchtone phone.
Speakerphone, please pick up your handset before pressing the keys.
So as part of your question. Please press star two.
At this time, we will pause momentarily to assemble our roster.
Yeah.
Yeah.
Our first question will come from <unk>.
<unk> with bank of America.
You May now go ahead.
Thank you Uh huh, good morning, Ron Frankel on Kirker.
Good morning, everyone.
Congrats.
Second quarter results.
My first question is longer our garden hardware remain firm and work on crew member.
Five per firm.
Although programmer Hawker long road and a higher cost.
Uh huh.
On.
The other line.
I'm from <unk>.
The softer loan growth and a higher correct.
What our plan.
For loan growth.
Uh huh.
Sure.
Good morning Russell.
I'll ask her to go into a video for the.
Okay.
Okay.
Thank you Russell.
First.
Secondly, we are maintaining our guidance of around 17, 5%.
Beginning of year, we have probably.
Conservative approach mentioned is 17, 5% now what you have already mentioned that we have some downside risk due to potential credit deterioration. This is <unk>.
General framework is important to note that we already have gone through half of the year with very positive results with Anoro.
North of 18% around 18, 6% down the road, what we're expecting is effectively on a softer.
Loan growth with a composition that is going to be tilted to retail bat with lower yields than previously expected because we are being more conservative in our origination approach. This is going to be a companion bye.
Higher cost of risk and the usual acceleration of no.
Income.
Sources, it takes and transactional activity that is usually higher during the second part of the year and finally by the seasonal increase in expenses that has two main components. The normal seasonality of the last part of the year that I previously mentioned and the trend in the acceleration of it.
And disruptive initiatives all in all we think that with this.
Sure.
Elements, we can be around 17, 5% previously mentioned.
Maybe just two other of our transformation.
Vessel.
Also when we provided the original guidance.
The expected result, pacifico, where not the results we're getting.
As we mentioned in.
In the previous call and in the vessel day.
Due to some specific event.
Pacific is having a standard year this year and that that is going to offset in part what Seth I'll just mention.
Perfect. Thank you very quick follow up in terms of the Coker ran.
Youre guiding between coupon one on coupon five so looking into next year that Buda.
Brian .
Or are you Kidding me.
Most of the worst part.
Operator.
Probably be normalizing.
When thinking about next year.
And although you guys have to listen.
This is reynaldo yoga.
We as you know we don't provide guidance for next year and we will do it in the first during the first quarter of 2024.
Ted.
A lot of them.
In terms of the impact.
So we need to confirm that information they tend to have a.
<unk> projections of the number but also we expect next year to have much.
Much better than results due to other things we are doing in terms of managing the risk in that.
In our consumer and SME portfolios, both in BCP, new angle. So there are headwinds that they always and we will have more information on that regard.
Bye bye the first months of 2024.
Perfect. Thank you very much.
One question for Bernardo grew our own.
Sorry.
Have a nice growing part are showing all the borrowing.
And we conclude <unk> come along Grupo Pacifico Prima and must be Bang on.
Olive garden consumer friendly Roe above 20%, but.
But on the other side when Merck when could we see people do the army Wankel Cold-cock broker.
Yeah.
Roy Harvey Moorcroft Gram per tonne.
What other crowding you agree employment.
We are rowing subsidiaries.
Now you'll have like a medium target.
For garden.
Yes. Thank you for your question our vessel.
But let me go one by one.
Actually.
How we manage capital and ASB is we manage them as a business unit.
Correct me, if I'm wrong about that.
That business is up with earlier, 17%. So it is close to what they are always we're expecting for that business.
Having said that this this first half we have we have had some.
Nonrecurring positive impact.
That helps obviously, the ROE, but going forward we have established.
For information on plan with <unk>.
For that business.
Aiming to have a narrow between.
Between 16% to 17% by 2025.
Regarding me Banco, both Mexico, Peru, and Nicaragua, Colombia.
<unk> business is a much more volatile business.
And we are definitely in the downturn of the business.
But we're working.
Both in the short run in the long run the short run basically focus on risk in the long run we need to revisit their whole business model. So us to go back to the Rois of over 20%. We have had in the past in that business and finally, Bolivia.
Bolivia, Bolivia, that's my.
We're doing whatever the best we can do in Bolivia.
Or if you compare our <unk> to the banking system in Bolivia, they're quite good.
Not much more to do in that business.
Excellent. Thank you very much.
Our next question will come from one recall D of Scotiabank.
Go ahead.
Hi, good morning, Congrats on the strong results and thank you for the opportunity my questions are related to shop it.
First the fee income generating monthly active users have been increasing as a percentage of total users. So I was wondering if you can provide some color on what are the drivers here.
We are increasing monetization and the second question is related to the strong growth in payment volumes that we saw in <unk> and.
Also related to the growth in the services payments. So my question there is.
How much of the TPB growth has been driven by the service payments what are the other drivers of PPD growth.
Scott are you there.
Yes.
For the question.
Yeah, I just mentioned.
Yeah.
Inventory days.
Yes.
Yes.
You may begin.
Thanks.
So the growth there.
So TBD.
TBD.
Yes.
Okay.
That sounds perfect.
In that way.
And Martin I don't know.
Your line.
Alright.
Good morning.
Okay.
Thank you.
On the monetization side.
The growth is mainly around.
Uhm.
We see NTIC.
These statements.
Yes.
One of them.
I'm talking about.
No.
And also the online.
Payment.
Thank you.
Having said that we have.
Alright.
Right.
We see an increase.
Transactions.
On operating.
Alright.
The long term.
Okay.
And Gainesville.
Okay great.
Also growing.
And we are actually exploring ticket sales gain.
And this trend.
We'll grow.
That are coherent.
Super.
Whatever whatever.
Okay.
Turning.
Thank you Francesca careful.
Then I had another question related to fee income, which was quite strong this quarter helped by the Olivia and operations.
How much of the <unk> one.
One of our how sustainable are these levels.
Because of that.
I wouldn't consider that one off I would consider them temporarily and the distortion is an accounting thing, let's say what you are doing is charging a fee and recognizing and the other part of the equation higher FX exchange for that reason I will say, we have a positive margin but.
This reflected and an abnormally high fee and an abnormally loss in FX. So is in a structural business that in this moment half.
More and more volume and on the wider spreads in these two variables, but this part of the business and believe it.
But maybe on top of that maybe.
And maybe on top of that one.
What we're seeing in the fee income business is that what we've been investing for decades.
Decades now.
Where we are when.
When I say, we've basically BCP Peru.
Sexual hop in Peru.
That's obviously paying off.
What we're also seeing and maybe the Capex part of it is.
The amount of affected in noncash.
This is constantly increasing beyond Europe .
David Great on things like that and obviously that is also.
Driver for fee income generation.
Thank you for the comment.
Our next question will come from Yuri Fernandes with JP Morgan.
You May now go ahead.
Hi, guys. Thank you. Good morning, I had a question regarding your cost of risk I understand you have expected losses. So now you are calling for a challenging outlook.
Sure GDP.
My colleagues regarding 2024.
I guess the scenario is still.
Sir Tim here.
These two one to $2 five cost of risk the level should that we should expect large deposits in horror are basically you are going to build those anticipatory provisions for the tough environment now and may be sort of next year, we should see.
Cost of risk already at a more normalized level. So I'm just trying to understand.
Each business and all that.
Some of them.
Normal course, or the short term or maybe no. Maybe are just doing this now because of the challenging environment and given your expected losses will improve at some point.
First one and I would like to check the box on the portfolio sale I guess.
That's some of the wholesale NPL improvement was regarding a portfolio sale, how big was that just runs or understand how that affected your new NPL formation.
Hello.
Yes.
In terms of the guidance for next year.
Can mentioned as they usually is that I mean.
Our our estimation our levels of provisions today include the impact of El Nino, We got probability between week and moderate that as reflected on our provision level today and Thats included in the guidance for Q4 or for that for a year end or between two one and two five.
Regarding next year as I mentioned before is too soon to tell and we would be able to provide you more information in the following months in next two quarters probably.
And in terms of the.
The sale of our.
Of that specific.
And in the wholesale banking.
$33 million.
That was.
Sovereign bonds.
That's a sovereign bonds.
In exchange, we made and EBIT.
We're talking about the sale of our.
Okay sorry.
It was a.
<unk>.
We had in our books and we would be we had an impact in terms of the E&P or the wholesale book of around $30 million.
But did you recognize any gain on that didn't need supervision and the sale at face value or do you have like an economic gain on that sale just trying to understand like information right. Because it was a nonperforming loan I believe you had some amount of provisions.
Yes, and I'll just try to understand the moving parts on the economic future.
Yes, we I mean.
Compared to a provision level.
Our profit.
So we estimated.
Higher loss than what we finally obtained by ourselves so it had a positive impact.
On the on our levels of provisions.
In the water.
Okay clear thank.
Thank you.
Our next question will come from Geoffrey Elliott with autonomous.
You May now go ahead.
Hello, Thanks, very much for taking my question, so the cost of risk.
Two 1% in the first half.
Guiding to $2 one to 2.5 for the full year, so that seems to capture particularly at 2.5.
End of the range points, a big step up in provision.
In the second half I'm, just trying to understand what sort of scenario it would take to get that big step up and get you to the high end of the range and how cautious you feel like you're being now with up to one to two five.
Yes.
What I can mention is remember that we haven't finished digesting all the impact that we've had in the first semester in our current level of provision. So thats incorporated in the production of the second semester, all those loans that are a default, but not fully provisioned.
By the end of the first semester and is included in what I just mentioned.
Forecast off of.
The impact that would have under under current information in terms of the portfolio looking forward. So.
That's why we are.
The increase.
The guidance in the concentrate is expected for the year for the year as a whole.
Okay.
Menu ends up being more than that.
There's some further risk that it could go even higher.
Sure.
Yes.
That's a fair statement yes.
Thank you.
Our next question will come from Tito <unk> with Goldman Sachs.
Go ahead.
Hi, good morning, Thanks for the question.
Thanks for the call and taking my question.
Two questions. One is on your insurance results continued to deliver good results there.
And how do you think about the sustainability of that going forward to that.
A bit of a decline this quarter I should that.
Normalized or can it remain above historical levels for some time.
You can go and that will be helpful and my second question.
Just if you can remind us the sensitivity of your margin.
To a lower rate environment your margin has been doing well, so far but <unk>.
How much pressure could there be as rates go down and you also show that the risk adjusted margin, which has been relatively stable do you think that can continue to be stable as we've seen recently thank you.
Okay.
First off we will have to offer.
First question.
Thank you.
It's important to explain or to commence something about the the part on the results.
The Asia business for these first two quarters, maybe one of the emulation is the higher investment results, we obtained in our branding because reimbursement rates we obtained.
In our investment portfolio.
Because the good performance of our investment portfolio in general.
The second reason of this and the higher results is the higher profits we have obtained in the disability and survivorship insurance. This is dangerous.
And that is related of the affiliates to the A&P the aggregate sorry.
Because in the last bidding contests.
We obtained an important person for these contracts.
It's an interesting increase in.
In the in the rates.
We have obtained.
On interest increase in premiums without the place that we expect that some part of <unk>.
Obviously for this year so.
This has generated a high profit for this business.
The surface, Malaysia is related with that.
Profit that we have obtained in the group life and medical business due to the repricing we made in the previous years, considering the buffer so we hope that theory.
The Covid pandemic so.
Considering that considering that.
Following the market trends are there.
<unk>.
Situation in the market.
We expect some.
Radio shack in there.
Collective.
The group life business in the in the next in the next months.
Yes.
We will obtain good results for this year, but we expect to have a sustainable.
Hi.
One the low 24, therefore, the nexon the following years.
Yes.
Real quick could you answer the second question.
With an instant adjustment I think our sensibility is around 25 basis points. The first year of the adjustment a little bit.
When we mention probably a couple years ago when the interest rates start to rise because the portfolio has shortened and our expectation is that we can we mined we can maintain on.
Margin.
Similar to the actual one with a combination of reduced rates and a change in the profile of the portfolio the move towards a more retail.
The product of the increase in retail banking and BCP and at a more accelerated growth in Nevada.
Okay. So stable ish NIM, but you mentioned 25 bps. That's for about 100 bps cut in rates is that the right sensitivity and and also if you can comment on the risk adjusted NIM off of particularly as you grow in retail.
Yes, and I will emphasize <unk> ish because is around it we are not talking about signed decimals.
Sure.
Okay.
Risk adjusted NIM and any comments, particularly as you go in retail.
Yes, the risk adjusted NIM.
Should improve the short term level when we adjust accordingly.
Cost of risk down the road, but this is not a precise guidance. This is a trend what I am mentioning at this point.
Okay, Yes, sorry, that's a quality normalize as you can see.
Some improvement.
More medium term.
Yes.
Okay, great. Thank you.
Our next question will come from Carlos Gomez with HSBC you May now go ahead yeah.
Hello, Good morning.
First of all thanks again for your infrastructure on capital and strategic initiatives.
You started last quarter.
<unk> continues to improve and we really appreciate it.
It's about how things are going.
Two questions one.
One is different from what you want to hear.
You emphasize.
From the macro but we would like to know what do you think that growth can be improving the long term and credit growth can be in Peru in Toronto.
Second one is on the digital initiatives, if you can tell us more about tempo and yield.
At this point, thank you sure sure Heiko.
Yes.
Today, and again correct me if I'm wrong.
Our.
<unk> suspects payroll to grow two 5% 2024 is that correct 24 at this point that thing is more around two one okay. We are considering basic scenario with a combination of weak and moderate El Nino at the beginning of the year.
The number of events.
Information is more representative without the impact of oil.
So anything between two to two five.
Percent grow Carlos just a quick comment on that.
Okay.
Everyone needs to grow much faster.
This comment goes beyond.
Beyond the impact on our business.
The level of poverty in Peru.
<unk> reduced dramatically over the last three years until covered.
Went back we went back in.
Couple of years like 10 years in terms of that ratio.
To go back we need to grow as our country at least 4%. So that's the challenge.
Again this goes beyond.
Our business regarding 10 for our new let me start with Eo Eo easing up actually in a friends and family.
Proof of concept with very good results and we're going to launch it a relief in a couple of weeks.
<unk>.
So we could talk much more about initial results in Mexico, but the initial results.
Quite good in terms of user experience.
The only indicator we have today.
Regarding temple.
It's performing quite well again in operating indicators.
We recently got a sample recently got the approval from the Ciena Superintendency to issue credit cards, we are in that process.
Yes.
So that's the next relevant stage.
Tempo of original business case.
As soon as we start to get more relevant information we plan to.
Hum.
On the Tempur business becomes more relevant for bancorp.
We plan to do something similar to what we're doing with <unk> regarding information disclosure.
Thank you if I kind of go back to the beginning you mentioned, yes. This is what needs to grow but one could ask me. So thats. My question is in the medium term what is your realistic expectation on running the business above.
They do come due over the next three to five years and also how does that translate into credit closely. Thank you, yes. So.
Long term in Peru is much less than three to five years, we have had fixed presence in six years, so it's quite difficult.
I don't think.
My personal opinion I don't think.
With the current scenario political social and they've got a microeconomic scenario I don't think that it is achievable for <unk> to grow 4%, 4% over the next few years, we need to do a lot of structural reforms.
We don't see them being done in the near future.
<unk>.
Regarding growth.
Portfolio growth.
I want.
A volatile providers announcing that with cost.
A lot of variables.
Regarding the.
Multiple of portfolio growth related to GDP growth. That's the main reason why.
One of the main reasons why we win.
Started to try to decouple from GDP growth, so as to keep growing.
At a much faster multiple.
Thank you so much.
Okay.
Yeah.
Our next question will be a follow up three years Fernandes with JP Morgan.
Hey, guys again.
Hello, It's me again I'll have a follow up regarding cost here.
Let's put a worst case scenario right now.
Moderate lanier driven by stronger knee and.
We need to revise our cost of risk.
<unk> accelerates our loan growth and this impacted your profitability can you cut your expenses on the investment plan like the singles 150 bps on a row headwind I'm just trying to understand what you can do like you today as a worst case scenario what can you do on all your digital initiatives like the bank will prefer to say no.
With respect to have ROE.
The most <unk>, whatever but to keep investing in technology and keep expenses flat just trying to understand <unk>.
This could be a ballpark for the company in the case there is.
Ice cream events, that's one and regarding also Neil I remember in 2017, you had started and Eric provisions for the event and later I guess part of it was not that bad debt.
We expect so.
Is that clear that this is a moderate to strong El Nino is the company could do.
Voluntary anticipatory.
You did again.
Thank you.
Yes.
Regarding your first question Julie maybe.
Previous comment, which we shared on the on the vessels. They also.
Most of the investments we're doing in the digital ventures and the digital transformation.
We are.
Reduced served them as expenses well diverse investments. The main reason there is that piece.
Obviously, there is a high risk in this investment we'd rather.
Be conservative and if something goes so we don't want to.
Surprise the market so going to your question on your specific question there is some room.
We're not planning to do that whatsoever.
Because of the results, we're having in the digital ventures and the discipline, we are pursuing and the investments we're making we don't plan to cut as of today, obviously, we don't plan to cut any investments in that sense. Obviously, there is if there is a major.
Dramatic scenario, which we don't see.
Today.
There is some room to cut expenses I don't think having said that I don't think that the.
The expenses, we can cut will offset all of the negative impact we may have in a dramatic scenario, but again I highlighted the word dramatic scenario.
Hum.
Yes.
Ask Ronaldo to answer the second one was.
In terms of our level of provisions if we have information by by that last quarter that that means that we have at our.
Nino coming.
Higher impact.
The moderate level about what do we have already considered in our projections.
Of course, we would start increasing our level of lateral operations, having said that comparing to what we had in 2017, we have a totally different situations companies are more prepared in.
Wholesale wholesale segments more more exposed to the El Nino phenomenon and.
And we have learned a lot during the last crisis.
Probably situations in social unrest and the political situation, we got to provide assistance and help to those clients in the retail banking that are exposed to these kinds of events.
In terms of the level of deterioration in those portfolios, we expect to have.
Relatively.
Is there any impact that you had in 2017, where desecration west already difference. So so that's in general our strategy, but we will have more information.
In the following months, mainly two complementary.
I would say this is a country, we're better prepared I thought we were in 2017.
Some of that.
Further to my to my closing remarks.
Work.
Almost all of this work.
Lowe's to be working with our clients.
At the corporate level or at the retail level.
<unk>.
Segregating them and helping them to be much better prepared.
Nino.
The major effect will come.
Well, thank you Jonathan.
Okay, and I don't want us to have some super bearish here and just checking the box what would be on all like if this happens what would be your message and thank you for the candid and animation that don't want to cut expenses, but if there is a need.
You made them. So so thank you for the clarification.
Great.
Okay.
Our next question will come from Sergey Dubin with Harding <unk>.
You May now go ahead.
Yes, good morning, gentlemen, thanks for the call.
Questions actually.
The first one.
There was some news about some ongoing.
We saw some political unrest again in Peru.
In July .
Pay down as I can.
And kind of how do you see that the trend there maybe that's the first question.
Sure I'll take that one hi, Jay.
To hear from you.
Oh, yes.
Uh huh.
I don't want to downplay the Soc.
Social.
Noise that there was in July .
As we mentioned in the Investor day, what we what we see is like we have.
Fragile stability today in Peru, but frankly, our political environment.
But.
<unk>.
The noise that social noise, we had in July .
It was very little there's nothing going on basically all basically nothing going on today.
Obviously nothing to compared to what we saw last year by year end on the January and February of this year. So today, we're again.
Going through a fragile stability.
And we hope that that stability improve as we move forward.
Okay, Great and then my second question is regarding.
Cost of risk.
So I'm a little confused about this el Nino.
It looks like from the presentation now.
Some of them 2024 event.
If I understood. This correctly, but you also talked about how your cost of risk for 2023.
As already incorporating that so can you help me with the timing of.
Are you expecting anything in 2023 or is that entirely 'twenty four event.
Part of that question on the second part is.
You mentioned that you expect.
Cost of risk trends to diverge in the second half with Banco <unk>.
Going down and perhaps BCP going up can you help explain why that is is that related to the steps that you've taken in terms of the.
Our risk appetite.
Color around that would be helpful.
Hello, Yes in terms of 2023.
At closing June numbers, we included everything that we expect for the year incorporating some outlook of the level of growth that is impactful for us.
For 2024.
That's in general.
The events that are under our control and that we foresee for the remaining of the year.
And in terms of.
Morocco.
BCP since I mentioned <unk> has started.
With some specific measures before BTB so that.
Remaining provisions left for both institutions vary I mean that the need for or me Rankle provisions.
For the rest of the year.
<unk>.
Lower than that we will see in BCP that's number one.
So as you mentioned.
Okay and this steps that you are talking about that relates to what I mean.
Are you Corbin.
Curtailing risk.
Loans to mortgage segment can you could you explain what it is.
Bankers already did and basically hasnt done yet.
Yeah.
Right.
That things we have done in both banks have limited the growth overall of the portfolios.
Have you seen it hasnt been a very good years in terms of loan growth in terms of the first six months or a year and that's a reflection of our stringent more stringent grade policies in both banks. So that's that's what.
What we've seen in and Thats why do we expect to have a.
A better outlook in terms of that of the new loans, but we still have in our portfolio of some loans that were impacted by the macro trends in that specific events that happen in Peru in the first quarter.
Okay.
And the third question is regarding NIM trajectory. So I believe you mentioned in the beginning of the call.
In a bunch of Latin American central banks already.
And you expect.
In Central Bank for <unk> in Q4.
This year.
Could you remind me what.
One again, what is the sensitivity of NIM.
I don't know lets say 25 bps.
Perhaps and then how would you expect NIM to sort of shape up.
Can you see successful rate cuts in 2024.
Sure.
Yes first.
As Jay mentioned previously <unk>, DVT or an instantaneous 100 basis points reduction in the portfolio is around 25 basis points. The first following year. That's the sensitivity our guidance is to remain in the same level that we previously mentioned.
But a combination of factors, we are going to grow the retail portfolio less than was previously expected, but at the same time the wholesale portfolio has already reduced in some degree so the combination of these factors.
Lead us to maintain our guidance in terms of NIM.
The expected result of our decrease in.
In reference rates is a gradual compression of the NIM that is going to be offset for the relative cluster rule of the retail segments on the van Costa already mentioned previously at this point, we are not providing guidance for 2024.
Okay.
Just make sure I can recall.
Uh huh.
100 basis point cut in interest rates leads to 'twenty five.
Paul NIM compression was a 12 month lag like next year essentially right is that correct.
As Daniel said say no change in the composition of the portfolio is that if you have the entire portfolio anew reduce at one 100 basis points the impact through the year is 25 basis points with a combination of maturities a sensitivity and so forth.
Unfold.
Okay.
Okay. That's fine thank you.
Yeah.
Again, if you have a question. Please press Star then one.
Our next question will come from Andres Soto with Santander you May now go ahead.
Good morning, Joe Franklin team. Thank you all so much for the presentation. Most of my questions have already been answered by that I would like to take the opportunity to ask for an update regarding the strategic plan for.
Investment banking and wealth management in the past you commented that you wanted to implement a plan to increase scale specifically in the wealth management business that may potentially include M&A activity I would like to get a sense of how that's shaping up on and when can we expect news about that.
Yes sure.
We shared as Arnaud Martel, Russia, Russia business sure.
In data <unk>.
Okay.
Basically the plan is to focusing the wealth and asset management were in that process. We are already.
Moving up the most of the investment banking business.
Part of it.
We're closing basically the M&A businesses in Colombia, and Chile, obviously, it has to it's not a one time hit as you have.
Todd.
Falloff.
We.
As we finish the mandates were up.
We already transferred.
Lending business that we had been through two BCP. So today.
I will tell you that by year end, we will have positive results in terms of we'll have finished all the cost reductions we expected.
I'll be very.
In shape to start growing.
Both organically and if there are opportunities inorganically in that in that business going forward.
Understood.
Thanks, again and congratulations on the strong results despite the challenging environment.
Thank you.
Yes.
This concludes our question and answer session I would like to turn the conference back over to Josh Shanker Ferrari for any closing remarks.
Thank you for all for your questions assessment noted, our GDP growth expectations conceals sales a week to moderate Nino cost payroll as well as announced government reactivation plans. Additionally, while the macro scenario would likely improve in the second half we still expect to see.
See a lag effect, which is reflected in our credit risk management approach.
<unk>.
Full year's pressure on loan growth and cost of risk importantly, we've been managing efficiency better than initially expected.
Despite the accelerating investments to strengthen our future businesses.
In all we maintain our guidance at around 17, 5%, while noting potential downside risk mainly associated to asset quality deterioration and El Nino posted.
Looking ahead, we remain confident in delivering our longer term Roe of approximately 18%.
This is underpinned by Bruce strong fundamentals and our emphasis on broadening non interest income via disruptive investment to decouple from the marketing complemented by our potential to leverage our brand strength and expand our client network says structural growth.
Unities.
Sure.
These efforts are fortified by our strategic advantage in acquiring low cost deposit are realizing efficiency improvements through transformational investment.
Now I'd like to give you a better understanding of how we are currently helping our clients and investing in a more prosperous future for Peru.
We're working across our organization and leveraging synergies to develop and deliver educational content and support in the face of dramatic threats through both both mass distributional channels and targeted individual actions.
Examples include Pacifico Seguros, commonly episode a program aimed at promoting a culture of risk prevention through workshops and conferences for funding. These micro entrepreneurs and community leaders. Additionally, pacifico and BCP are sharing recommendations on how to tumor.
Energy climatic events through their financial obligations bulk gas popular web com, while we Banco is distributing educational content on probation across multiple channels.
We are implementing a strategic approach driven by the need to safeguard our portfolio and more importantly, minimizing adverse effects on our lives and businesses of individuals in Peru.
We firmly believe that these are the crucial investments that will yield long term benefits and unlock the vast opportunities in Peru.
Thank you all for your continued support of our Great Lakes.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.