Q2 2023 Credicorp Ltd Earnings Call
Good morning, and welcome to the credit Corp, second quarter 2023 conference call.
All participants will be in listen only mode.
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I'd now like to turn the conference over to Milagro Sidonia. Please go ahead.
Thank you and good morning, everyone speaking on today's call will be Frank with everybody, our Chief Executive Officer.
Joining me is our chief financial Officer.
Participating in the Q&A session. We'll also be and just got absolutely Chief Innovation Officer, I mean, I know Youll start chief risk officer, So somebody made a head of insurance and <unk>.
I've got a lot that they lost CFO .
And then Diego, Colorado feel our head of Universal banking.
Before we proceed I would like to make the following safe Harbor statement today's call will contain forward looking statements, which are based on management's current expectations and beliefs and are subject to a number of risks.
And I referred to you to the forward looking statements section of our earnings release and recent filings with the SEC, we assume no obligation to update or revise any forward looking statements to reflect new or changed events or circumstances.
I'm, Frank I'll say, Ronnie will it start to cool commenting on the highlights of our study followed by somebody else who was on the macro environment in which we wore our financial performance and provide an update of our outlook for 2023 Young Frankel. Please go ahead.
Thank you good morning, everyone.
Thanks to all of you were able to join US during our June 20th Investor Day, where you heard directly from our leadership team on the progress of our businesses.
It's also a highly valuable opportunity for us to hear from you I'd like to take a few moments before discussing our Q2 results to recap some of the key takeaways.
First we're taking a disciplined approach to investing in businesses that we expect will begin in the midterm to further decoupled oh prefer months from that of the macro context.
Two undertakings include expanding the share of business, our gross our portfolio as well as increasing our non interest income through adjacent businesses.
While January generally are disruptive initiatives of our long term orientation yup. It starts out as a venture debt plays a pivotal role in this strategy in the short term.
He has already shown very promising results with income approaching cash cost and is on track to reach breakeven by 2034 dose we intend to further invest in the expansion as well as one other thing the other disruptive initiatives with the potential to generate value across our businesses.
Yes.
We've heard a request you request to provide more information on capex trajectory and have increased our disclosure on the business.
Our goal is to provide you with meaningful updates of Yafei continues to evolve.
Second while we are proud to be the market leader, we don't take that position for granted we're strengthening our competitive moat by becoming increasingly digital and harnessing the power of data.
Our top priority our priority is and will continue to be attracting and retaining the best talent. So that we maintain our competitive edge.
Finally, we're committed to enhancing our governance and transparency, while continuing to pursue social impact initiatives.
Aim to exert a progressively greater influence on our clients and communities to strengthen their ability to airports, while playing a crucial role in financing the energy transition.
Now, let's turn to this quarter's results.
Well the political scenario in the second quarter improved the impact from the social unrest the disruption from cyclone yachts as well as the other effects from the coastal El Nino resulted.
In the first half of the year in Peru.
Despite this backdrop, Greg Carpenter in favorable results. This quarter net income expanded 22, 6% year on year with <unk> for the quarter for the quarter at 18, 6% driven by strong results in the universal banking and insurance businesses as well.
Well as a modest recovery in micro finance business.
Loan volumes, however experience a slight drop as we manage on the retail side and wholesale demand showed reflecting the economic climate.
Even though we saw a decrease in low cost deposits along with our system wide construction, we continued our market share.
Market leadership in capturing these deposit thanks to our long term study in aviation client relationship trusted brands and extensive rich.
Our strong balance sheet provides us sustained.
Sustained resilience to navigate the current weak macro backdrop as we continue to execute our value creation strategy.
Cost of risk has increased primarily due to SME and the most vulnerable sub segments individuals.
The bank gross cost of risk is still high but this mean diminished this quarter.
This evolution reflects the impact of an environment of lower in terms of demand.
Slight inflation and high interest rates on payments capacity offline.
We have strengthened greatest risk management I remain focused on maintaining stringent origination standards and disciplined loan pricing.
Our disruption of the initiatives continued to gain traction during the quarter driven brand and collection of a growing number of programs.
Nonetheless, having registered strong into income at BCP and Pacific on deepwater, we have managed our cost to income ratio.
Regarding micro perspective for this year <unk> will elaborate further about social and climate events events resulted in a tougher first half that we expected.
At this time, our GDP growth forecast for 2023 is 1%, even though we see a rebound of around 2% growth in the second half driven by stimulus measures taken by the liver.
During the second half of the figure in horror sea surface temperature anomalies associated with El Nino sterile motivated the cancellation of the industry can do so until the efficient session on also impacted the agricultural sector.
Nino sterile phenomenon is expected to continue until the summer of 'twenty 'twenty four.
Those are kind of the high probability of development of El Nino NL Pacific Awesome right.
For the summer starting 'twenty for the highest probability scenario today is or the lean yoga fit out will have a week to moderate magnitude.
The situation unfolds, we will keep you up to date on the experts' outlook and its potential impact on our businesses.
It is important to remember that Peru's macroeconomic fundamentals remains strong.
After the New York State or transitory shock, there will be a favorable position converged to Latin America average income pick up at all level.
There's a bit of catch up with the ban on Peru stability to promote and unlock private investment.
The most important growth driver in the back.
Thank you and let me now turn the call over to Ted.
Thanks, Joe Cry uncle and good morning, everyone.
Franco mentioned, we delivered favorable financial results I will start with a brief comment a walkthrough, what Washington dynamics, but we'll focus on the year over year evolution on a sequential basis is structurally lower royalty and retail banking at BCP only bank was upset.
Yeah contractually in wholesale banking on the funding side deposit mix continue shifting towards higher yielding losses low cost deposits fell across the Houston I've got pretty core Nonetheless, we maintained our indisputable leadership position in this funding source with 41% market share.
Quality metrics deteriorated, reflecting the challenging macro dynamics in the first half of the year from a year over year perspective.
<unk> grew 21, 5% driven by raising interest rates and the strength of a loan dynamics.
Partially offset by higher funding costs is structurally loans rose five 5% may showing either daily balances fueled primarily by retail banking at BCP and Nevada.
We are managing our asset quality metrics with a challenging backdrop the structure or the cost of risk increased 127 basis points to two 3% driven mainly by SME individuals have BCB I'm buying me back in.
Allowances for loan losses were equivalent to 5.7 per se until destructive along.
So you showed us in the right.
Rose, 53%, which reflected increased profitability in the life business and a stable year over year was sold for brokerage some caution.
Operating expenses increased nine 1% driven mainly by core expenses at BCP and disruptive initiatives, while operating income increased six 6% fueled by BCP Pacifico the efficiency ratio improved 310 basis points and Institute a $44.
6% in summary, this quarter, but also for your first thoughts on an ROE of 18, 6% over our sound capital base was driven mainly by Universal banking uninsured on businesses, having say a note of caution he snored as I will explain when I present, our updated guidance.
We expect softer results in the second half of the year next slide please.
For the second quarter. The Peruvian economy is expected to have registered a slight contraction impacted by El Nino horsetail.
Bush roll rates in the agriculture fishing on manufacturing cycles into negative drain growth in the mining sector attributable to increased copper production and the recovery of production, Netherlands boneless. After a temporary should bounce last year, partially offset these declines.
These dynamics hopefully with the impact or the first quarter, Mark by social unrest and climate debate, who lead to a similar 0.5 decline year over year in economic activity in the first half 'twenty.
23. This represents the most significant reported decline in 'twenty two years, excluding the pandemic period.
Domestic demand fell 2% year over year in the first half of 2023, driven by a shot a 10% decline in private investment and a sluggish 0.6% growth in private consumption.
Price pressures are finally, easing and inflation expectations have dropped materially lepton central banks in Chile, and Brazil have already started the rate cutting cycle unfavorable central bank is expected to follow suit in the last quarter of this year.
Regarding on what else in Peru, GDP is expected to grow around 1%. This year GDP growth in Colombia is expected to slow to one 6%, while <unk> GDP growth is expected to be flat.
As you know we are closely monitoring the evolution of El Nino will stay at a weather phenomenon I mean, it's impacting our businesses each lateral efficiently statement on July 21, and then assign a 40% probability that el Nino for sale will be weeks during the summer of 2024 36.
Then it will moderate and 11% that is will be a strong.
In his last speech of July 28, President will likely communicate to the importance of private investment as a tool for economic growth and development moving a part from the previous government as fans. She announced for instance that one $8 billion worth of infrastructure projects will be award.
In the second semester through premium, Brazil, the investment promotion agency.
They're all smucker economic fundamentals remain robust with low public debt and niche international reserves equivalent to 33 of GDP and 29%, respectively. These goldman's ability to unlock and mobilize private and public investments will be key moving forward.
Makes sense.
<unk>.
BCP results were favorable despite this context regarding the key quarter dynamics.
<unk> increased 0.9%, despite a slight 1% drop in loan volumes. This drop reflects the downturn in economic activity, primarily in wholesale banking on more of a settlement before origination guidelines in reading.
Our NII reflects a disciplined approach to pass throughs, I know, what our ability to leverage a transactional funding base to mitigate racing funding cost BCP V. England rules on the back of higher transactional levels, particularly through digital channels and deal with provisions in consumer loans.
Credit costs remained at high levels.
Recessive high inflationary environment in the first couple of years, I think that the payment capacity or vulnerable sub segments, which are more labor and unstable jumps. Additionally, SME <unk> segment drove the uptick in provisions on a year over year basis growth in mid teens, what is fueled by.
<unk> 29, 46% increase in NII. This evolution was driven by raising interest rates and five 2% increase in the structure of the loans, which was driven primarily by a 10, 9% uptick in retail banking loans through SME credit cards.
Our mortgage loan loss.
Provisions increased 177, 8% over a low base. Additionally, roll was driven by an increase in provisions consumer loans credit card and SME peeling, which were affected by macro economic conditions operating expenses grew eight 3%.
Driven mainly by a T I T and marketing expenses and investment in disruptive initiatives. This increase was partially offset by a nonrecurring tax expense for the consequently, bcp's efficiency ratio dropped 420 basis points and Institute a 37% why are.
We 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 makes.
It makes it slightly.
Yeah, I think continues to progress towards monetization, but it was shooing its medium term targets one to be the main payment and is working through segment be present in the Lady luck to payrolls and finally meet the financial needs of your favorites feed.
<unk> features launched in the last 18 months has allowed us to continuously grow its active user base engagement and cogeneration monthly active users reached the 90 million Mark at the average mantra transactional level for this group has rising from $14 nine to 23 five in just one.
One year ago.
Currently $5 2 million you said January Inc.
Our main monetization drivers continued to be approved in the past six months monthly more waiting until Pos transactions grew 20% to total 11 million transactions in the end of June in just three months utilities payments have grow 4.8 times and it stands at the end of June .
<unk> and $2 2 million transactions through Yelp April's the girls merchant volumes grew four eight times to extent and 25 million soldiers at the end of June .
In the last six months monthly these scores minutes 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 choice white the cash cost per active user per month is stood at 4.4 soldiers and.
Next slide please.
Milan cost profitability began to recover this quarter athlete a challenging start early this year on a 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'm also the insightful and 19 in the funding cost. Consequently, NIM increased 80 basis points and stood at 13, 5% OLED equaled rose two 5% after the bancassurance fee level roles alongside growth in disbursements.
Milan cost provision expense dropped slightly after a reasonable sort of fine tune to better reflect client behavior, but remain high due to a deterioration in payment capacity.
For year over year perspective in <unk> rose, 1% to our NAV teekay restructured loans and interest rate pass throughs, which mitigated the impact of racing funding cost.
No need to single Rose 26, 6% due to the same factors I rules are those hotline in the quarter over quarter to 90 days.
Provisions rose fueled by you don't tolling payment performance and a more challenging macroeconomic outlook will.
Operating expenses rose five 9% and the efficiency ratio is stance.
52, 4% finally, our ROE rebounded to nine 5% in the quarter Milano, 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 will be.
Leave that untapped potential exists in the Colombian Microfinance market next slide please.
Or are we at Grupo Pacifico was high this quarter.
30.
True.
32, 1% driven by the life business rewarding quarter over quarter dynamics net income deteriorated on the back of a lower net gain from our associates. This evolution reflected a downturn or solve 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 by 41% through an improvement in medical assistance were sold which was partially offset by a downturn in the Russell foot 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, England when a quarter over quarter basis income was boosted primarily by the Treasury Department is madness, ASB cash surplus be structurally portfolios and short term investments in terms of recurring businesses assets under management.
Wealth management grew four 2% and drove equaled rule, while the assets under management level in the asset management business remained stable year over year income increased 32% driven mainly the capital markets business, which reported gains on the appropriate already fixed income portfolio in Colombia on site.
The Treasury Department, we generate there are needs to be at the same dynamics seen quarter over quarter regarding procure businesses wealth management assets under management grew 9% and drove him go grow while assets under management.
Contracted 17% driven by outflows in third party funds and income decreased slightly as these outflows generates lower piece.
Next slide please.
Yeah.
Okay.
No we will look at creative Florida consolidated net earnings on a quarter over quarter basis, our restructured loans measured in average daily balances fell 0.6% or increased zero percent.
Percent with FX neutral rule in BCP retail banking on Mi band four was offset by a contraction in wholesale banking at BCP.
Our deposit base constructed triple at 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.
Structural year basis is trumping loans increased five 5% measure in governance daily balances fueled primarily by retail banking at BCP and me button there.
Deposit balances dropped two 7% or <unk>, 2% with FX neutral low cost deposits has filing system wide.
Our market share has rising to 40, 46% improving three represent 65, 1% of our total deposits next slide. Please now let me explain core income dynamics.
Core income rose, two 3% quarter over quarter, and a 15% year over year on the back of NII NII grew two 3% quarter over quarter and 21, 5% year over year difference was attributable to volume dynamics, the skills early and to discipline and pass throughs.
In this context, the net interest margin rose 18 basis points quarter over quarter, and 110 basis points year over year Tristan.
Six point or 2% reset just didn't need increased marginally to 456% we analyze 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 travelers to offset the impact of FX transaction due to restrictions on foreign currency availability. If we exclude this impact fee income increased four 1% instead of an acquired another cheeking transactions, while the resolve of ACS transaction 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.
Syndicated.
Saturday 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. These florida in this scenario.
Quarterly basis roll in the structurally nonperforming loans was driven by Nevada after loans through program in the first quarter fail delinquent by SME team at where low ticket riskier sub segments reported poorer performance.
Credit cards, and consumer loans, where the dip service capacity will narrow segment fell due to over indebtedness and a stable employment. The aforementioned was partially offset by a sale of a delinquent portfolio in the energy sector in wholesale banking, which has been previously provision.
On a year over year basis, structurally 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 nonperforming loans in retail banking in Nevada was driven by the same factors of those seen in the quarter analysis and was partially.
I will say by the sale of huddling with retail banking portfolio during the first quarter of the year in this context the structure our coverage ratio stood at 108% to analyze our structurally coverage ratio is important to review the NPL portfolio mix in terms of unsecured and collateralized problems.
Please refer to appendix two or more details 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 more retail. Additionally, also frees have caused that increase our scale.
<unk> payment capacity has been impacted by macroeconomic conditions provisions in consumer loans and credit cards of BCP M. Leland will remain at high levels.
Recessive high inflationary environment in the first half of the year I'll take the payment capacity of clients at BCP vulnerable sub segments, which are more leverage on how how stable jobs. What are the most impacted white at Milan clients were severely hit by the first quarter events. Additionally, SME <unk> segment of BCP drove the ft.
Provisions quarter over quarter in this context, the structural cost of risk stood at two 3%. We are closely monitoring our asset quality metrics have refined our client segmentation by risk profile.
Have gradually implemented a strict origination guidance for individual SME <unk> on me wrong. Nonetheless, the impact of recent measures or 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 is critical to level at BCB core businesses fuel grew.
In this phase through an uptick in <unk> expenses related to an increasing usage of cloud and client and become more digital more usage of IP applications licensed software to enhance capacity and improve security and moves to attract more specialized the desktop.
Marketing expenses, mainly driven by favorable theismann to boost their policy to leave ourselves a growth in programming expenses. The aforementioned dynamics were partially offset by a nonrecurring tax expense rebels.
Expenses by disruptive initiatives are creating global level increased 70% to ensure market leadership in the long term operating leverage remains strong at BCP stand alone and Mi band operating expenses remained under control, but England Blue light.
Lower base, our efficiency ratio of students a 44.4%. This first half down 310 basis points compared to last year and driven by higher income at BCP Pacifico.
Next slide please.
Similar to the previous quarter record quarter profitability was driven by strong results in our cell banking and insurance businesses are really this quarter expanded by 130 basis points year over year and stands at 18, 6%. Meanwhile, our relief or listen Mr.
It was 18, 9%.
Note that we have benefit from relative low effective tax rate the semester due to the strong performance of our reinsurance business and due to the fact that the tax exempt interest cinchona accounted for the largest share of that.
Revenue mix at BCP all in all these results are a testament to our resilience and ability 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 the scenario of a week to more Nino for stable at year end regarding long rule, the social and climate events of the first part of the year, coupled with that is languishing.
Total demand taken at all well know what apply borrowing capacity, particularly in our consumer loans credit card and SME segments as BCB. Accordingly, we adopted stringent origination guidance in those segments. In addition, the multiple roles in wholesale banking has weakened which reflects a downturn in business activity.
These dynamics led to lower than expected as structurally long road, which no assistance have between one and 4% measured in average daily balances.
Our NIM guidance remain unchanged between $5 eight a six 2% as.
Higher than initially expected wholesale 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 to stand between two one and two 5% largely driven by the impact of the macro conditions on BCP performance note that BCP and at <unk>.
Likely to have the Belgian dynamics on this front during the second semester asked me vanquish started its cycle of loan deterioration at crazy restrictions before BCB.
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% from 47%. Finally, we remain maintain our ROE guidance of around 17, 5% by now.
<unk> downside risk associated with asset quality deterioration and El Nino will scale with these comments I would like to start the Q&A session.
We will now begin the question and answer session.
It's a question you May press Star then one on your Touchtone phone.
If he's got a speaker phone please pick up your handset before pressing the keys.
And as part of your question. Please press star two.
At this time, we will pause momentarily to assemble roster.
Yeah.
Yeah.
Our first question will come from Mr. Probably along with Bank of America you.
You May now go ahead.
Thank you Uh huh, good morning, Ron Frankel on Kirker, Kirker and good morning, everyone.
Don Brock our.
Our second quarter results.
My first question was longer Ottawa and garner.
I remember her work on crew member program Green bond five for corn.
Oh God.
Greenberg Hucker long road, and a higher cost of risk.
Congress on we could be the other line.
Well could come from crude.
The soccer long road in higher growth career.
And what on Prem or if you're expecting a cord long road got career.
Sure.
Sure.
Good morning, Russell This is a practical Alaska.
To go into a video for the answer.
Okay.
Thank you first effectively we are maintaining our guidance of around 17, 5%.
At the 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 how as a 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 are 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 by higher cost of risk and the usual accelerate.
Show of no.
Income.
Sources. It takes on transactional activity that is usually higher during the second part of the year 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.
A.
Elements, we can be around 17, 5% previously mentioned maybe.
Maybe just to add on but as I mentioned a vessel.
Also when we provided the original guidance.
The expected result of typical we're not the results we're getting so I'll talk as.
As we mentioned in.
In the previous call and in the vessel day.
The due to some specific events.
Pacific is having an outstanding year this year and that May that is going to offset in part what you said as I've just mentioned.
Yeah.
Uh-huh frankly go quick follow up in terms of the Coker rent you are guiding between coupon one a coupon of five so looking into next year with Barracuda.
Ryan could we have booked or are you kidding me.
Most of the worst part.
I'd probably be normalizing.
When thinking about next year.
Although you haven't historically lower yourself.
We as you know we don't provide guidance for next year, and we will do it and in the first during the first quarter of 2024.
Having said that.
Uncertainty in terms of the impact of El Nino, So we need to confirm that information they tend to have.
A better projection of the number but also we expect next year to have a much better results are due to other things. We are doing in terms of managing the risk in our in our consumer and SME portfolios. Both in BCP in Iraq. So there are headwinds that they own wins and we work we will have more information on.
On that regard.
Bye bye the first months of 2024.
Okay great.
Her conquest for Reno darker yellow younger who are.
You have a nice car Gary Parr are showing all the R O N.
Sorry, Oh, we got crude who do come along Grupo Pacifico Prima.
Bang.
Olive garden consumer goods and neither are we put about 20 per firm.
But on the other side when looking for people, who Ivankov grew cold coffee Carter, we conclude the Seattle, we heard most heartburn per song Oh, what other crowded you agree employment.
Yeah.
Subsidiaries are never know you'll have like a medium target and then for Greg.
Yes.
It wasn't a vessel.
But let me go one by one.
It actually.
How we manage capital and ASB, we manage them as a business unit.
Correct me, if I'm wrong about that.
That business has had with not only a 17%. So it is close to what they are always we're expecting for that business are having said that this this this first hub, whereas we have had some.
Hum.
Nonrecurring positive impact.
That helps obviously the ROE but.
Going forward, we have established a transformational plan with it.
For that business are aiming to have other bits.
16% to 17% by 2025.
Regarding me bound go both me back up it wasn't Viva Colombia.
Microphone business is a much more volatile business and we're definitely in the downturn of the business but were working.
Both in the short run in the long run the short run basically focus on a risk in the long run we need to revisit their whole business model. So as to go back to the are always 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 the arrow.
These are if you compare our are always to the banking system in Bolivia, they're quite good there's not much more to do in that business.
Okay.
Excellent. Thank you very much.
Yeah.
Yeah.
Our next question will come from one recall D. Scotiabank you.
You May now go ahead.
Hi, good morning, Congrats on the strong results and thank you for the opportunity My question sorry related to shop at the first.
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 and how you are increasing monetization.
And the second question is related to the strong growth in payment volumes that we saw and shop it.
Also related to the growth in the services payments. So my question there is how.
How much of the TPB growth has been driven by the service payments.
What are the other drivers of growth.
Scott are you there.
Yes.
Thanks for the question.
Yeah, I just mentioned.
Yeah.
Inventory days huh.
Okay.
Thank you.
The next week.
So they grow.
In terms of.
TBD.
Good.
Okay.
That sounds perfect.
Yeah.
And Martin I don't know.
Alright.
Hum.
Yeah.
On the monetization side.
Growth is mainly around well.
You are using.
Yeah, I didn't hear it.
Yeah.
One of them.
When you're talking about.
And also the online.
Payment.
Okay.
How do you think that will.
Alright.
Yeah.
Thank you.
We see an increase.
So on operating.
Alright.
That's right.
Okay.
And he gave me.
Okay great.
It is also growing.
And we are actually exploring he get sales gains.
And different.
Yes.
That are kokiri cafes.
Super.
Whatever.
Okay.
Yeah.
Thank you Francesca careful and then I had another question related to fee income, which was quite strong this quarter helped by the Libyan operations.
So how how much of the fifth in Bolivia, I want it all helps US. Okay. Now are these levels.
Cause that.
I wouldn't even consider.
Consider that one off I wouldn't consider it temporarily and the distortion liaison 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.
And an abnormally loss in FX. So a is an instructor led 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 some of that maybe.
Maybe I'll tackle that one.
But what we're seeing in the fee income business is that what we've been investing for decades.
Decades now.
Where we are when I say, we've basically BCP bedroom.
Sexual hop in Peru are obviously paying off.
What what we're also seeing and maybe the Capex part of it is.
The amount of affected in noncash alternative is.
Constantly increasing beyond yup, I mean, Debbie it's great on things like that and obviously that is also.
Driver for fee income generation.
Yeah.
That's helpful. 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.
Lower GDP.
My colleagues regarding 2024.
Yes, the scenario still we don't they don't on Thursday here, but.
In these two point was $2 five cost of risk the level should that we should expect large deposits. In horror are are basically you are going to build those anticipatory provisions are the tough environment now and maybe starting next year, we should see you know.
Cost of risk already at the more normalized level, so just trying to understand.
Each business and all that.
Some of them are near normal or the short term or maybe you know maybe are just doing this now because of the challenging environment and given your expected losses will improve at.
At some point, that's the first one and I would like to check the box on the portfolio sale I guess, you put out that some of the wholesale.
Improvement was regarding a portfolio sale, how big was that just turns or understand how would that affect the yard new NPL formation. Thank you.
Hello, Yeah.
In terms of.
The guidance for next year, what I can mention that they usually is that I mean.
Our our estimation with our levels of provisions today include the impact of El Nino that probability between week and moderate that is reflected in our provision where they walked away and that's included in the guidance for four four in Florida for a year end or between two one and two five.
Regarding next year as I mentioned before it is too soon to tell.
We would be able to provide you more information in the following months in next two quarters probably.
And in terms of the sale of all of.
That specific.
And then in the wholesale banking, it's our 30 30.
Sure.
Does that sound.
Sovereign bonds.
As a result, that's a sovereign bond.
Exchange, we made on EBIT.
We're talking about.
Oh, Okay sorry.
Uh huh.
I know that we had in our books and we would be we had an impact on in terms of all the E&P or the wholesale book of around $30 million.
But did you recognize any gain on that like 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.
As compared to a provision level, we had a profit.
And so yeah. So we actually made it higher than what we finally obtained by <unk>. So it had a positive impact on our on our levels of provisions for it.
In the war.
Okay. Thank you.
Sure.
Our next question will come from Geoffrey Elliott with autonomous.
Go ahead.
Hello, Thanks, very much for taking my question. So the cost of risk has been two 1% in the first half.
Writing to 2.1 to 2.5.
For the full year, so that seems to capture particularly at the 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 without 2.1 to 2.5.
Yes.
I can mention is remember that 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 progression of that second semester. All those loans that are on a default, but not fully provisioned.
But by the end of the first semester.
And what I, just mentioned and that their forecast of all of that impact that Nino would have under under current information in terms of the portfolio or looking forward. So that's why we are.
The increase that the guidance in the crossover is expected for the year for the year as a whole.
Okay. So if it's all made new ends up being more severe than best that's some further risk that it could go even higher.
That's fair.
Yeah, that's that's that's.
That's my first statement yes.
Thank you.
Our next question will come from Tito <unk> with Goldman Sachs you.
You May now go ahead.
Hi, good morning, Thanks for the question.
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.
Saw a bit of a decline this quarter I should that.
Normalize 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, you know your margin has been doing well so far but do you think there.
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 were there to answer the first question.
Thank you well, maybe it's important to explain our comment something about the the parts out and the results are in danger of business or are these first two quarters, maybe one of the emulation is the higher investment results we obtained game.
Oh, well because reimbursement rates, we obtained and in our investment portfolio.
Because the good performance of our investment portfolio in general.
The second reason of this and the higher results.
Higher profits, we have obtained in the visibility on survivors 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.
An interesting increase in there in their rates.
Oh they are.
Interest increase in premiums without a place that we expect that some part of carbon plates for Covid claims for these years so.
This has generated a high profit for this business.
The surface, Malaysia is related with that.
The higher profits that we have obtained in the group life on medical in the Hawaii business due to the repricing.
In the previous years, considering the blood vessels, we hope they do you worry that the.
On the call we funded so considering that considering that Oh polo in their market brand Sunday, our competitive edge.
<unk> ratio in the market and we expect some and radio shows in in there.
The collective and group.
Group life business in the in the next in the next months.
And we will obtain good results for this year, but we expect to have some.
Stable R O I.
The load Fannie four therefore, the nexon the following years.
Yes.
Real quick could you answer this question.
We've done a instant adjustment I think our sensibility is around 25 basis points. The first year of the adjustment.
We mentioned, probably a couple years ago, when the interest rates start to rise.
Because the portfolio has shortened.
And our expectation is that the weekend, we mined we can maintain on a more.
Marty I mean, similar to the actual one with a combination of reduced rates and a change in the profile of the portfolio that moves towards a more retail <unk>.
Problems of the increase in retail banking and BCP and at a more accelerated growth in Nevada.
Okay, So let's see.
Bullish NIM, but you mentioned 25 bps, that's for about 100 bps cut in rates is that the right sensitivity and and also have you can comment on on the risk adjusted NIM off of particularly as you go on retail yes.
And I will emphasize <unk> ish because this.
We are not talking about signed this month.
Sure.
Okay.
Okay, and I know, it's on the risk adjusted NIM and any comments, particularly as you go and in retail.
Yes, the risk adjusted NIM.
She will improve the short term level when we adjust accordingly.
Also down the road, but this is not that precise guidance. This is a trend what I am mentioning at this point.
Okay, Yeah, sorry, that's a quality normalize as you can see.
Some improvement, but a bit more medium term itself.
Yes.
Okay, great. Thank you.
Our next question will come from Carlos Gomez with HSBC you May now go ahead yeah.
Hello, Good morning.
Thanks, again for your infrastructure on capital and strategic initiatives.
I think last quarter, but.
It continues to improve and we really appreciate that gives us at the same time.
About how things looked like two.
Two questions one.
What is different from what you want to hear.
You emphasized dutchman from the macro but we would like to know what do you think that growth can be but really the long term and credit growth can be in Peru in Toronto.
Second one is on the digital initiatives, if you can tell us Martin about tempo.
At this point, thank you sure sure Heiko.
Yes.
Today, and again correct me if I'm wrong.
Our.
Civic armies of specs payroll to grow two 5% 'twenty 'twenty four is that correct.
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.
Transformation is more.
Representative without the impact okay. So.
Anything between two to two five.
Carlos just a quick comment on that.
Oh.
Everyone needs to grow much faster.
It is come and goes beyond beyond the impact on our business.
Hum.
Poverty in Peru as well.
<unk> reduced dramatically over the last I don't know about it.
Until covered.
Back we went back like in a couple of years like 10 years in terms of that ratio either way.
To go back we need to grow as our country at least 4%. So that's the tonnage we have again this goes beyond.
Our our best.
Regarding painful Neil let me start with Eo Eo easing up actually in a friends and family.
Proof of concept with very good result.
We're launching a relief in a couple of weeks. So we could talk much more about initial results in next call, but the initial results are quite good in terms of user experience that that's the only indicator of where we are today.
Regarding temple.
It's performing quite well again in operating indicators are we recently got a sample recently got the approval from the Chinas, who bring tendency to issue credit cards, we are in that process.
That's the <unk>.
Next relevant stage.
The tempo of original business case so.
Soon as we start to get more relevant information we plan to.
On the Tempur business becomes more relevant for Bancorp, we plan to do something similar to what we're doing with Yap at regarding information disclosure.
Thank you and if I kind of go back to the beginning you mentioned, yes. This is what they need.
So one could ask me. So that's my question is in the medium term what is your realistic expectation marine the business about what they do come due over the next three to five years and also how does that translate into critical for you. Thank you yes. So.
Long term in Peru is much less than three to five years, we have had fixed preference in six years, but its quite difficult.
I don't think Theres a pair.
First of all my opinion I don't think with the current scenario political social and economic macroeconomic scenario I don't think that it is achievable for Bruce to grow 4%, 4% over the next few years, we need to do a lot of structural reforms.
That we don't see them being done in the near future.
Regarding growth.
Portfolio growth.
I want.
I would rather don't provide us announcing that we because theres a lot of variables.
Regarding that.
The multiple of portfolio growth related to GDP growth. That's the main reason why or one of the main reasons why we would see.
Started to try to decouple from GDP growth, so as to keep growing.
At the March Foster multiple.
Thank you so much.
Okay.
Yeah.
Our next question will be a follow up from Yuri Fernandes with JP Morgan.
Hey, guys again.
Hello, It's me again I'll have a follow up regarding cost year, but let's put the worst case scenario right now.
Moderate Lanier.
Stronger Neal.
Need to revise our cost of risk.
<unk>, our local rules and didn't impact your profitability can you cut your expenses on the investment plan like the same old 150 bps on ROE headwind I'm just trying to understand what you can do like you said there was a worst case scenario what can you do on all your digital initiatives like the bank, we would prefer to say no.
We prefer to have Roe's, Nemo, <unk>, whatever but keeping basketball technology and keep expenses flat just trying to understand the next fastest could be.
Ballpark for the company indicated there is ice cream events, that's one and regarding also Neil I remaining 2017, you had the you started generic provisions for the event and later I guess the marine parts like it was not that bad debt.
So in that case, you got to know clear that this is a moderate to strong El Nino is the company could do you know like voluntary anticipatory provisions that you did again.
Thank you.
Yeah.
Regarding your first question on jewelry maybe.
Previous comment, which we shared on the on the vessels. They also move.
Most of the investments we're doing in the digital ventures and the digital transformation.
We are.
Reduced served them.
Fences Validus investments the main reason there is that.
Obviously, there is a high risk in this investment we'd rather.
Be conservative on if something goes so we don't Wanna.
<unk> market so going to your question on your specific question there is some room.
We're not planning to do that whatsoever, we are.
Because of the results, we're having in the digital ventures under discipline were pursuing and the person 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 a 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 there is.
The expenses, we can cut will offset all the negative impact we may have in a dramatic scenario, but again I highlighted the award problematic scenario.
Yeah, I'll ask Ronaldo to answer the second one was in terms of our level of provisions. If we have information by body that last word that I mean that we have at our Nino coming off higher impact.
Oh.
Moderate levels about what do we have already considered in our projections of course, we would start increasing our level or level of provisions, having said that comparing to what we had in 2017, we have a totally different situations companies are more prepared in the in the wholesale wholesale segments more more expose.
Nino phenomenon.
And we have learned a lot during the last crisis, there could be situations in the social unrest and the political situation, we got to provide assistance or help to those clients in the in the retail banking that are exposed to this guidance on sort of events. So in terms of that level.
The regions in those portfolios, we expect to have it.
Relatively.
Is there any impact that you had in 2017, where desecration Westwood already difference. So so that's in general our strategy, but it will we will have more information on that in the following months mainly to complement the already.
I would say this is a country, we're better prepared but I thought we were in 2017.
Some of that and this is a spoiler to my to my closing remarks.
Sure.
Almost all of this.
With critical work flows to be working with our clients both at the corporate level or at the retail level.
<unk>.
Gaming them and helping them to be much better prepared.
Nino.
Major effect of World Cup.
No.
Okay, and I don't want us to have some super bearish, you're hearing just checking the box lucky to be on all like if this happens what would be your message and thank you for the candid in automation that you know you don't want to cut expenses, but you said there is a need.
You made them. So so thank you for the clarification.
Great.
Okay.
Yeah.
Our next question will come from Sergey Dubin.
Harding Londoner.
No go ahead.
Yes.
And gentlemen, thanks for the call.
Thanks Ali.
The first one.
There was some news about some ongoing.
Or we suffer from political unrest again in Peru in July has that died down.
If I can pin and.
Kind of how do you see there.
And there maybe that's the first question.
Sure I'll take that one.
Good.
Good to hear from you.
Yes.
I don't want to downplay the 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 fragile political stability.
But they did.
The noise of the social noise, we had in July .
It was very little there's nothing going on or they basically go basically nothing going on today I'm, 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 this stability improve as we move forward.
Okay, Great and then my second question was regarding.
Cost of risk.
So I'm a little confused about this el Nino it looks like from the presentation.
It's going to be a summer 2024 events, if I understood. This correctly, but you also talked about how your cost of risk for 2023 is already incorporating that so can you help me with the timing of it.
Are you expecting anything in 2023 or is that entirely 'twenty four event. That's first part of the question on the second part is you.
You mentioned that you expect.
Cost of risk cramps to diverge in the second half with <unk>.
Kind of 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 Kirby your risk appetite, but any color around that would be helpful.
Hello, Yes in terms of.
2023.
Closing June numbers, we included everything that we expect for the year, incorporating some outlook or the level of growth that is impacted for four or 2024.
That's in general it meets all the events that are under our control and that we foresee for four years remaining of the year.
And in terms of of Morocco.
BCP since I mentioned me Banko has started.
Some specific measures before BTB, so that the remaining provisions left for both institutions very I mean that the need for or mirror ankle provisions.
For the rest of the year.
Lower than that but we will see he BTB, that's what that's what it says or is it because you mentioned.
Okay and this.
You're talking about that relates to what I mean are you.
Ah you're curbing.
Curtailing risk or curtailing loans put more risky segment, but could you could you explain what it is.
Bank, because I already did and basically hasnt done yet.
Yes, you are totally right I mean.
That that things we have done in both banks have limited the growth overall of the portfolios.
Have you seen it hasn't 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 mortgage stringent grade policies in both banks. So that's that's that's what what what we've seen in and Thats, what do we expect to have a I.
A better 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.
Pacific events that happened 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.
You know a bunch of Latin American central banks already.
Nathan you expect Peruvian Central Bank for cobalt rates in Q4 of this year. So could you remind me what.
One again, what is the sensitivity of <unk>.
NIM too.
I don't know lets say 25 bps of.
All right and then.
How would you expect NIM to sort of shape up.
If you see success right.
<unk> cost in 2024.
Sure.
Yes first.
As Jay mentioned previously this is heath DVT or power, an instantaneous 100 basis points reduction in portfolio is around 25 basis points. The first following year.
That's the that's the sensitivity our guidance is to remain in the same level that we've previously mentioned, but a combination of factors we are going to rule the retail portfolio less than was previously expected, but at the same time the wholesale portfolio has already reduced in some degree so the combi.
The nature 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 plus the rule of the retail segments on the bank was already mentioned previously at this point, we are not providing guidance for 2024.
Yeah.
Okay.
Just make sure I heard you clearly hung.
100 basis point cut in interest rate leads to 25 basis point NIM compression was a 12 month lag like next year essentially right is that correct.
Hey, Dana as Daniel said say no change in the composition of the portfolio is that if you have the entire portfolio annual reviews at once 100 basis points the impact to the year is 25 basis points with a combination of maturities.
Since the DVD unsold, Florida unfold.
Okay I understand 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 and I would like to take the opportunity to ask for an update regarding the strategic plan for it.
Investment banking and wealth management in the past you commented that you wanted to implement a plan to increase our scale, it's supposed to be coming in the wealth management business.
Maybe potentially include M&A activity I would like to get a sense of how is that shaping up on when when can we expect news about that.
Yeah sure others.
We shared I don't want there to actually who runs our business sure.
In detail.
Vessel day.
Basically the plan is to focus in the wealth and asset management were in that process. We are already we're pulling off that 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 all one time.
Todd.
Full off.
We.
As we finish all the mandates were up and what we already transferred.
The lending business that we had to improve to BCP. So today.
I would tell you that by year end, we will have a positive results in terms of we'll have finished all the cost reductions we expected.
I'll be very are 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 for sold despite this challenging environment.
Thank you.
Okay.
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 assistant noted or GDP growth expectation conceals a week tomorrow right local scale 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> patients.
For a full year's pressure 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.
No we maintain our guidance of around 17, 5%, while noting potential downside risk mainly associated to asset quality deterioration and Minneapolis.
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 democracy complemented by our potential to leverage our brand strength.
Our client network says structural growth opportunities as they emerge.
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 gardening, helping our clients and investing in a more prosperous future for Peru.
We're working at Bravo organization, leveraging synergies to develop and deliver innovation on garden and supporting the phase of telematics threats through both both mass distributional channels and targeted individual actions.
Examples include Pacifico Seguros SURA.
So we're a program aimed at promoting a culture of risk prevention through workshops and conferences for funding these micro entrepreneurs and communities.
Additionally, pacifico and BCP are sharing recommendations on how to manage climatic events through their financial obligations bulk up on popular web com, while the bancorp is distributing educational content on duration across multiple channels.
We're implementing a strategic approach driven by the need to safeguard our portfolio and more importantly, minimize adverse effect on the 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.
Thank you all for your continued support a great weekend.
Yeah.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.