Q2 2023 Intercorp Financial Services Inc Earnings Call
[music].
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 Nurenberg I've inspire group you may begin.
Mhm services will discuss its second quarter 2023, and we are 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.
In the financial services instead of one shallow about Saturday Chief Executive Officer of Index, a widow, Mr. Bruno <unk>, Chief Executive Officer 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 he's onshore west coast media presentation to accompany the discussion during this call. If you didn't receive a copy of the presentation or the earnings reported they are now available on the company's website I would say that not be to download a copy otherwise for any reason if you need any assistance today please call in.
It will be 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 as such statements made are based on people that are the assumptions and factors that we've changed both in actual results to materially differ from the current expectations for a complete note on forward looking statements.
We started with the earnings presentation on the report issued yesterday.
It's now my pleasure to turn the call over to Mr. Felipe we fully paid off the young Chief Executive Officer of Intercorp financial services for his opening remarks, you said a coffee analyst. Please go ahead.
Okay. Thank you.
Everyone 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.
You know the country got off on the wrong foot with social unrest and inclement weather in early 2023.
Andrew I had a 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 tumor 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 in that.
So alleviate pressure on pricing.
Interest rates in Peru have probably peaked and at some point in the second half of the year, we would expect 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 lines.
This has fostered a 15% revenue increase this quarter.
47% earnings growth compared to the same quarter of last year when market conditions impacted the better 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 solid efficiency level of 35% in the court.
At interbank.
We have sustained growth across revenue life, despite the moderation in banking acute.
NIM has expanded further to five 6%.
Well, our provisions continue to increase and reach a banking as we are digesting the impact in the Peruvian consumer.
Lower economic growth.
Pleasure.
Actually the effect of the social and weather dislocations previously mentioned.
We expect gross motivation of our consumer book into the second half of the year to continue.
I didn't catch the moodle, we see good investment returns with a wellhead impediment.
Lastly, fixed income portfolio.
The company remains a market leader in the annuity business was doing to higher growth segments, such as individual life and retail insurance, which have more importantly increased contribution to total premiums in the last year.
As a 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 hasnt started to provide new income streams to our business through 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 to <unk>.
<unk> will explain in detail further on on the first topic continuously loan loss allowances provide strong coverage.
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 ROA.
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.
The Ito and focus in key businesses.
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.
I will review first focus 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 decreasing inflation of the last quarter and therefore, the initiation of the solid rates together with a relatively stable exchange rate at least to meet their nation.
The new estimate of the Central bank for reaching the inflation target of 3% is the first quarter 2024.
Economic growth with the folks Italian evidenced by the negative trend registered in the last month considers to be the worst for Mr. In a long time and the new expectation of GDP for yearend is B note two persons.
On slide three financial performance at <unk>.
Continues to post growth without really impacted by high close to free for a few months I immerse himself investment with shops.
Six key messages 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 topline year over year growth continue at 15% this quarter and Mi continues to increase with a lower base, reaching five six person at interbank.
There has been a further increase in cluster fleet coming from consumer lending pushing the bank cost of freight in the quarter to $3 six, especially in the retail cost of reached to peak to 6%.
The highlight of the consumer portfolio Easter was short of sustained and consistent high inflation as in many other countries and negative GDP growth in the first semester of this year.
And the social imply any disruptions of the first quarter.
We have seen a deterioration in the consumer payment behavior, given the Nashua, Nonetheless governance ratios remain sound.
We continue to see good efficiency levels, both at the bank level, we are strictly monitoring managing costs, especially at the bank with first week a cost income ratio of 37% in this market are still improvement versus last year, mainly due to the good operating leverage.
And just to kind of really a 14, 3%. This quarter has been impacted by Gustav reached eight terabytes, a shelf investments Vishal I think David.
Finally, we continue to register some capital labor 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 we continue to build on our three key strategic priorities, which are first growth, reaching $5 8 million clients either back in growing and 47% year on year.
We get done with a digital retail banking NPS of 48, 72% of our retail clients being digital.
The focus for the T V's niches with growing market share in consumer finance at any 1.2% acquiring business, 44% in annuities at 28%.
No.
First on pages six to 10, let's talk about our growing customer base is sustainable.
Well, it's nice sheets we.
We are seeing is growth of customer base of ice fish or 15% year over year in banking, 17% insurance, 10% and with management and 53% and payment methods.
On slide seven <unk> second fuel reported earnings of $331 million are up 24% or 7% on a quarterly basis Augusta at 47% year over year with a not only a 14, 3%.
Lottery in yearly increases.
Mainly due to a recovering the investment with shopping with wealth management is strong results coming from nutrition.
Payment has performed nicely despite a decrease in early August .
At least that continues to grow and most ski I should grow at applebee's.
It looks like eight good news is top line total revenues continue to grow double digit or 15% year over year.
Mainly due to the growth with <unk> in banking of 18% wealth management recovering from negative territory when you enroll in payments of 8%.
On slide nine another positive is our fee income, which constitutes a source of incremental and diversified revenues growing almost 10% year over year in banking, which is the same.
63% of HD and payments, which represents 37%.
On slide 10, some efficiency levels are I can say 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 in Pos 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 in highlighting that we are building, 100% digital solutions for our customer journey, which includes day to day banking savings financial planning by Nancy insurance wealth management and acquiring for MAGE <unk> in Egypt.
On slides 13, and 14 both of this notion of digital indicators continued to show nice strength when compared to the previous year steel. We believe there isn't a way to go in when we issued the Gatwick saga.
As of June 2023, digital customers reached 73% of retail customers, we do that with the bank during the last 30 days.
Hi.
Last year.
Sales reached 65% up 2% from last year.
Digital shafts that we shouldn't be gaither has improved sharply from 75% to 83%.
MTS for digital customers continues its path.
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 transactions per month from management, we do reaching 43%.
Yeah.
Now, let's move to the performance.
So I much prefer.
Our key segment on slide 16 to 24.
Starting with banking in line with our focused strategy, we continued increasing market share, reaching 22, 7% and consumer loans as of June 2023.
19, 4% in retail loans $15. One question in retail deposits in now for question in commercial loans.
However in line with the increased risk condition of 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 give them loan.
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 banking effort.
Yield on loans at 60 basis points in the quarter and 240 basis points from the year, reaching 11, 5%.
I mean 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 has been partially offset by rising.
Funding costs cost of functionally troubleshoot the sense 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 and donuts.
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.
During the month of July we have started to see a first go read some of the other nine deposit rate controllers, which constitutes the first turning point 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 and retail deposit market share has continued to increase.
On slide 31, we have seen a pickup in cost of risk up to three 6% male.
Mainly due to the impact from the retail portfolio, which has reached at cost of risk of expression.
This increase is mainly focus on credit cards and personal loans as they might 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 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 planning much.
We're in the process of materially impacting cost of three already this quarter.
NPL coverage ratio continues to be tight at times.
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 on to 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.
That's 28 session.
Indeed, when we read the insurance business lines, which constitutes high profitability business lines continue to grow nicely year over year or 28% for life insurers and 9% for retail interest increasing their contribution to total fee.
On slide 23, the quantity 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 HD expression equity and mutual fund as of the end of June .
On slide 24.
Wealth management.
Is 6% up in terms of assets under management.
<unk> remain in positive territory, although not fully recovered yet.
Well, it's actually five 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 18 monthly fees.
Moreover, during may this year to keep life easy pay combined two loans EC pay 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 at 16% year over year, and Motorola E. Commerce transactions are gaining share within our transaction volume, 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 win 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.
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 medicine, which has grown two times.
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 in court 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%.
Tumor lending growth he said, 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 quarter.
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 interbank continued 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 has been shipped to $500 million Amy.
To build a more sustainable business.
On the social circle.
National services integration platform and the mass as well as the launch of ECB, yet our solutions are now contributing with financial inclusion.
Moreover, Eagle Bank has been recognized as number one in the medical laser ranking for talent attraction and retention in west certified by <unk>, while it is a company committed to quality and diverse.
Finally on our governor strong industrial water it issued surfacing immediately report nine weekday right.
Framework any physical group companies approved our responsible investment policy aligning 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.
This is a five to five 6% in banking new to increase yield on loans.
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 and cost income ratio of 34, 9% in banking at 33, 3% our base much nothing eminent.
Shannon, we continue to strengthen our payment ecosystem and each day, we present, a growing and profitable operations.
Finally, we are revising our guidance for cost of risk in Iowa for this year. However, often the current credit cycle and around 18% sustainable ROE remains our midterm targets.
Thank you very much now we welcome any questions you may have.
Thank you.
At this time, we will open the floor for your questions.
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Okay.
The first audio question comes from Aeronef Stoga Lentando with Bank of America. Please go ahead.
Thank you.
Sandeep.
Good morning, Jamie.
Got it.
Thanks for the opportunity to ask questions.
My first question would be on but he was shocked me.
Can you provide us like an update on what could be the impact on El Nino.
I don't know if you'd have been looking to whether your distributions.
To 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.
Tim 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 president to go for early elections.
I believe at the end.
<unk>.
G L impact.
But are you hearing the possibility of new demonstrations.
So again any color on El Nino the potential outlook will be.
I appreciate it.
Then on my second question is on your ROE guidance.
So you are lowering it for.
For this year.
You are maintaining at a medium term.
Are the 18%.
But I would like to understand when do you expect to reach the 14%.
Do you think it could be.
A cheaper bowl next year.
And what could be the drivers behind it.
Would it 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 into people we've been made in the.
The same tanks.
The agencies that followed this phenomenon, which saves US a 50 50 cash.
Many of these are being extremely Nino is not that high probably where you're going to be a 50% probability of it being <unk>.
Low to moderate and Nino.
But again every week, we get new information some of them collide with each other or some other key with Gd U S agencies probably date.
Hum.
But more from a really does any of that next week, we get some.
From the Australia.
<unk> there's likelihood.
It's brilliant in the past you've got 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 moderating growth in two fronts, but let me get it will elaborate later, but and Hawaii segment no high risk segments, where we are our moderating growth, but also we're starting to prepare.
Other income and regional salt 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.
Early next year.
Late January or February , which is that you should all of it. So again, there's not lots of update there.
Youre, probably everybody following the news not very complete yet just.
Similar to what the government is doing the government is doing.
Thats all funds in order to reinforce here Chris.
Christopher to make sure that that phenomenon to snacks.
Absolutely.
But again, we have to play by ear.
Once we get new information in terms of the the social unrest and political and.
And turmoil that we saw at the beginning of the year that cash come down significantly.
There has been.
Come on.
Announcement of continued.
People trying to do things that were.
Not very successful those happen.
July and specifically the 19th of July .
And I think they reported western it was about 20 to 25000 people actually going to long demonstration.
It has not had an impact.
<unk>.
Personally I think that now.
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.
So I think that's water under the bridge with the news that we have right now in front of us Unfortunately that and will continue to be the case and then in the in the <unk>.
Cost of risk from.
Just briefly.
Again, we haven't worked in detail in the in the numbers for next year, there's lots of things moving.
Moving moving around.
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.
Taylor mentioned that first.
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 have 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.
Moderate growth not negative, but starting this quarter and hopefully for 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.
I again, I don't want a project next year, but there are many macro condition that shoot.
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 midterm, we are very confident that the 18% is achievable given the nature of our businesses the stage, where they are the investments that we're doing in deficiency that we're running.
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 at Ward mentioned that Bosch.
Hopefully.
Let's say.
And I'm not trying to predict but certainly for the last quarter of this year that should be also water under the bridge in terms of of those impacts that happened in the first quarter very very our amongst capture partially because we close very very very soon.
The quarter to be events in the first few it has captured.
A significant portion this quarter, probably is something that for the next quarter.
We expect normalization for the latter part of the year and hopefully next year, we'll see.
Probably not as a group.
Pre COVID-19 level.
But obviously not as bad as we've seen in the first semester of this year.
Oh, perfect very careful with the lipid thank you very much.
No you're welcome thank you.
The next question comes from one recall day with Scotiabank. Please go ahead.
Hi, Good morning, and thank you for taking my question.
And so the economic growth expectations have weekend and cost of risk has to be higher than anticipated.
However, we are still seeing the consumer loan book, expanding almost 4% quarter on quarter. So can you talk about how you're balancing the cost of risk with growth in the consumer portfolio.
What type of products and clients are driving the growth in the consumer and the consumer portfolio.
Sure. Thank you very much.
As you know we are like.
Our portfolio is very geared towards consumer that's not a perpetual we're not afraid or.
<unk>.
We are familiar with the credit cycle, we know this happens.
That great Tycho 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.
We're leaders in consumer we want to continue being introduced on tumor and we're building out all of our strategic pillars to make sure.
That is sustainable Augie.
Obviously, we have to be very tactical depending on the situation.
So what we're doing is we continue to growth we're gearing towards lower risk segment presents some challenges of growth your value proposition has to come there to to put the brakes in growth is not something else about it don't you have a credit card customer they have their lines.
They use them.
Certain tax situations that we have to be there for them. Obviously, we have to be very responsible in terms of what we do.
Part of the growth is our customers existing customers.
The lines they already had.
Consumer direct cash consumer loans is easier to put the brakes on.
So and that's all we've seen like moves in the collateral.
Its structure of our portfolio a few growing Dorian.
The 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.
The drivers of that.
Engagement and relationship with customers remain healthy.
Just a matter of helping them go through these tough situations 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.
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The next question comes from Alonso Aramburu with BTG. Please go ahead.
Yeah.
Yes, hi, good morning, and thank you. Thank you for the call.
Three questions. The first one is on your holding expenses, which were.
A little bit larger than unusual can you just comment to what 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 it's likely to be in 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 margins can become.
Barbara.
Thank you.
Okay, Let me.
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 expansions there only that.
Okay.
What is impacting a small portfolio that we have there as you will remember.
Talk to us 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 is 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 somewhat out 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 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 friendliness of what we saw in terms of intake valuations I made went down because of the trends that we saw <unk> reach up and down this quarter and also again 25 or 20.
$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.
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.
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.
Olivier just mentioned.
We have a more.
A portion of the portfolio that is invested in.
Some funds 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 now the majority of the portfolio is mark to market and so on the fixed income and equity side.
Ed.
I would say very hard to predict whether this is.
Move up or down it depends on the market.
Because again it's.
Mark to market and so it would be largely dependent on what market prices are going to do.
The fixed income portfolio.
Then rebalance.
A good portion now that is going through.
Equity as opposed to P&L.
But then the equity portion.
He is the stock that we hold them portfolio are going to fluctuate.
As market valuations.
Go for the rest of the year, so hard to say.
How much more.
We have seen like we've been saying we've seen much better performance a year.
We'd expect that to.
To be much more stable going forward for us in the portfolio.
Yes, Thank you Bruno alongside forgot to say something actually because the portfolio, we have India in that at.
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 gained 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 payment solution. So it's very strategic for us to have the wagon.
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 all.
August was 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.
Yeah.
Your last question was in terms of margin, let me pass it onto me get us as you can tell them.
Good morning, Alex.
In terms of rate.
I'd like to highlight.
The ninth because I mean not every.
What is going to be the net.
You'll see what has happened.
An X ray of rates have been increasing both in consolidation.
<unk> is 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.
You see 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 consolidate in non us.
Because at some point before year end, which is G furnished rate decreases.
We should have some positive impact 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 IND.
Flexion point there okay in our asset book more focus on retail it shouldn't be a little bit less cash. It is nothing we could try to speak as much as we can with the highlight from Docomo had worked with a little different because there you recently in terms of pretzel, we still keep a rate decrease in there.
Now when we talk about dollar rate.
<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 fund next.
Next year.
Each day, there is an inflection point in next year and the ratio to decrease in the commercial loan book, where we have the biggest party.
No we could see there also are decreasing in India, so putting everything together I am not yet completely sure what is going to happen with new were just running the asking which now will depend also on the third component, which is a portfolio mix now because this year. Upon your mix has also helped improve.
The yield on loans.
And depending on the growth of next year, if that could continue to be the case. So I'm sorry, it's not a straightforward answer but I think there are different events moving in different directions now.
Okay.
Okay. Thank you for all thank you for the color.
Thank you.
Thank you.
The next question comes from Marlin Medina with J P. Morgan. Please go ahead.
Hello, everyone. Thanks for transfer to ask questions actually most of my questions have been answered, but just a quick follow up on margins and I understand it the difference or the dollar a portion of them for the <unk> portion, but can you provide the sensitivity for every 100 basis points.
Rates move.
Yes mission, we have provided this.
In the past okay in the sensitivity has been neutral to positive when the rates were going up okay.
And that looks like that the already since the TEP of 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 at the time, So let me come.
Back to you now for the sensitivity now.
Is it decreasing rates consolidation.
Because we are still working on that one.
Yellow button lender 19 that michela mentioned it before.
Consumer book should be less sensitive.
Especially it's mainly saw ish.
Pricing there does not.
Correlate to.
The cost of funds.
More related to to risk appetite actually sold.
Couldnt be on the down turn of the right asset.
It is.
The commercial book.
Yes.
This is a common.
The speed of the movement in rates have also been impacted by competitive dynamics, but not each week.
So for example, this year, we've seen a solid rates in the market being higher than the reference rate because of a decrease in the key inclusive of the financial system.
We will have to see also what happens with the liquidity in the market.
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 risk holds still under pressure due to the customer a 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.
Cardinal study so he helped me by the question, but basically here.
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 where the bleeding.
Capex there in order to admin expansion.
But Carlos with project provides a little bit more clarity on the specifics on the numbers.
So Hello Andreas.
Philippe said some of the pressure that you've seen is comes from the growth.
That we've had in the last couple of quarters, we will continue to look for that growth.
And okay.
Sorry can you hear me I think I've lost connection.
No it's okay.
Alright.
Okay. Okay.
So so so.
So you've seen that we will continue to follow that growth.
There has been some pressure on margins due to increased competition.
But we expected that what we are trying to do is to maintain our share in physical puissance.
<unk> increased our float or the flow to interbank.
And.
Services to those clients.
We'll increase fee both at the bank and.
ECP and we would like to increase our share in the e-commerce.
Business, which we in <unk>, 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, 26% 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.
And of the how we look at it I don't know if that answers your question.
That's very clear thank you regardless of formulary.
Charlie.
My second question is related to is probably a follow up on the question.
Cost of risk outlook.
I would like to understand.
To what extent are you in your guidance for cross sell rates already incorporate the risk of El Nino or.
Indeed indeed.
They were a license or we should see additional cost of risk pressure to be zero or pieces moral.
You're bound portable Boston I'm twenty-four.
Yes.
No I would say that the Casa ratio for 2023 as I mentioned the guidance nor the the the effects of El Nino will probably.
Yes.
We probably can.
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.
B heavily affected by Conoco, so we're preparing to portfolio for that but in terms of growth.
<unk>.
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 agricultural that's behaving very well our hour PD over their relationship.
Companies, we work with the most of it was so we are also working with them in order to make sure. They are ready for it and as they've done in the past and we're confident that you will 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.
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 in.
Our commercial book, So we have a more balanced portfolio.
So if I understood correctly, 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 to our past.
In many events five years ago or so.
What was the historical impact of these type of events on your cost of risk and Wayne.
Should we see that being reflected.
In terms of idiots.
It is a full quarter of this year or in terms of provisioning I mean.
Or or it's going to be once the event is in full swing.
Yes, it should be between the first back mostly in the second quarter of next year.
What we can yes.
Which is very different because there.
That was a very different phenomena that we have <unk>.
Four.
Many years.
So yes. It's not included this year is probably it is going to be incorporated in the first quarter or second quarter of next year and that should be it basically because of the fact that one of the best in that lab.
That's not the whole year, what we've seen in the past.
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 1% increasing PDL.
If you go through them very.
Specific in certain areas.
It does not affect 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.
Okay.
Thank you. The first question comes from Danielle <unk>. So I'm glad you called capitalism and the question is what is your expectation for asset quality indicators can see it in the growth in the consumer segment and a challenging outlook ahead. When do you believe the Vance who reached the peak of MBS and this change the appetite.
Growing in the consumer segment.
Hi.
Thanks again for Europe .
For your question.
Let's see.
What is the expectation for growth when do you believe the banquet reached a bit well, we think we've reached the peak this quarter.
Some leftovers for next quarter, but based on what we see going through the book.
We are going to work.
Going through the peak.
<unk>.
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 that.
In the 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've seen is that and the changes in the <unk>.
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 I will cover a bit when the credit cycle is in the current 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 as you know the model 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 Alexander 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 by works.
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 including 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 and the impact we all know that add back online.
Okay. Thanks.
Thanks, Brett for your question, let me pass it on to retail.
So you can help me with that since you have already been looking at that.
Okay.
Let me go into detail of the Bayou that include 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.
Demos 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. Specifically.
We have been 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 to the beef my engagement needs being.
Mercury's Adobe the main bank of this client.
They bring look more.
Volumes to ash.
The third point is more cross training 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.
The cross sell to our client base through yes.
Yep.
We also see that turn.
Credit and debit card and this is also being reduced.
The app growing double digit we had also seen the growth in Mexican consumers and this has a strong impact coming from digitally.
And the last point in which still care about when is the impact or the rail eventual fish on the numbers and also the <unk> with payment I think some of this is really showing in our numbers first of all Steve fees are growing almost 10 prescriptions for banking in for payments.
In this.
A related.
Due to the strategic focus in on payments both for <unk>.
Customers are not eligible for near terms. We also have seen the increase in net interest income stemming from decreasing volumes not only yields.
Another thing, which I think is very important to consider coming from the digital strategy.
<unk> 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 is really client base and top line with an improving cost income and now the improvement in the cost income does not.
Only because margins are high 90 in the net interest income is growing a lot at equilibrium, we're able to manage these growth. Neither an increase to cost you have seen the numbers this quarter in relation to bifurcate increasing cost. So I think this is something that differentiate us from our fee issue there either and I think it shortly.
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.
That's how we can go back to question number two on detection yes.
Thanks Alexandra regarding your question first of all there's a small reduction in earn interest basically for two reasons one is.
<unk>.
In exchange rates and doubts or dollar holdings produce.
Less interest in Solus terms and the second.
The other line also includes some dividends received we received.
A smaller amount of dividends during the period.
Thus far the other line that has also reduces.
We make a loss of <unk> 30 billion.
Real estate valuation and those too.
Lyons explains most of the production.
Okay. Thank 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 our results.
Hi, Mike.
This concludes today's conference call you may now disconnect.
Yeah.