Q3 2023 Credicorp Ltd Earnings Call
Good morning, everyone I would like to welcome all of you to the credit Court limited third quarter 2023 conference call.
Presentation will accompany today's webcast, which is available in the investors section of credit Corp. 's website today's conference.
This call is being recorded.
A reminder, all participants will be in a listen only mode. There will be an opportunity for you to ask questions at the end of todays presentation.
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Now it is my pleasure to turn the conference over to credit Corp. I R. O B Lagasse glass you may begin.
Thank you and good morning, everyone before.
Or do they school, our chief financial officer that somebody else will be providing the introductory comments. In addition to his usual discussion of the macro environment information for pharma.
Our CEO, Frank Young Frankel somebody could not be with us today.
Speaking on today's call with me Raimundo modality, Oh, Yummy, who will give us an update on youngest brokerage.
Finally participating in the Q&A session. We'll also be that just got Russell Chief Innovation Officer, right now, though you thought chief risk officer, So somebody made a head up insurance and pension and.
And tell us that they love CFO of MELA.
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.
Expectations and beliefs and are subject to a number of risks and uncertainties.
I refer you to the forward looking statements section of our earnings release and recent filings with the S E T.
We assume no obligation to update or revise any forward looking statements to reflect new or changed events or circumstances.
Please go ahead.
Thank you good morning, everyone. Thank you for joining us our third quarter 2023 conference call, while the macro environment has been more challenging than expected credit Corp has continued to demonstrate its distinctive resilience in Peru things, primarily clarity, we're surprised I'm prudently managed loan portfolio and funding advantage.
Sure.
A strong NII is complemented with an increasing share of the core non interest income streams.
Using those from insurance on yuppie, which are partially mitigating the impact of the loan portfolio deterioration. While <unk> is still work to be done. We are pleased with the progress in increasing core noninterest income, which is a key part of our strategy will be coming from the macro.
Oh, what a strong track record demonstrate our ability to successfully navigate complex in vitamins. We have built a diverse portfolio of businesses most of them benefiting from robust brand recognition and a strong customer loyalty.
This privileged position further solidifies our leadership, especially in challenging conditions, we have reduced cutting healthy margins, even after a high provision supported by long mixed shift is stricter origination and vulnerable segments dynamic pass throughs on our funding advantage.
Our solid capital base represents a nice trend, particularly with being a challenging credit cycle, where they impact both soft macro conditions. So payment performance against specific segments is evident.
We have already stated we believe strongly in the importance of continuing to invest in both the technological transformation, our core businesses and disruptive initiatives to maintain and enhance our strong competitive moat and future sustainability.
Please makes a slight by embracing our agile uncertainty relative mindset, we are building a diverse business capturing synergies maximizing our main profit pools that are into new client segments and developing our own disruptors, we seek to retain a healthy and sustainable Roe.
Our focus on gaining a deep understanding of both pricing on upcoming market trends allow us to meet our customers' changing needs and solidify our leadership and increased penetration in new markets right.
I mean do we now provide an update on the sustained progress had yuppie, reaching just over seven years has become the main payment network in Peru.
He is the most mature example of our disciplined approach to disrupt showing innovation as we advance towards our goal of decoupling from the mine Raimundo. Please go ahead.
Thanks, Peter and good morning, everyone. Yeah base, an example of a rigorous approach to innovation and our commitment to meeting current and future market needs.
Hitting the 10 million Mark for your betas over a year ago was a turning point for US we initiated our monetization plan by rapidly launching new business lines and functionality driving both scale and engagement at.
At the close of Q3, yeah beside over 9 million monthly active users conducting an average of 29 transactions per month up over 160% year on year.
Making interoperability reality, yes, if it continues growing at an exponential rate a clear sign of the benefits of this new service offers to both clients and the ecosystem in general that based on not only the primary payment network in Peru. It is also the did you as a brand that both the highest awareness level in the country.
Please turn to the next slide.
As the number of active your betas continues to grow with each new feature added. They use of individuals features also increased driving gains in market share attracting even more yet beta some partners, while operating more and more efficiently reinforces our fly wheel effect.
So pumps are a clear example, how yuppies, helping us decouple our growth from the market.
BCP is top of market share it used to be around 10%, but after launching this functionality through yet our market share rose to 46%, which represent by fixed growth in just 18 months.
Last January we enabled bill payments through ERP and have seen an upward trend for mostly growth with over 20% of your barrels now using the service.
We are currently at just 5% of our expected Tam for Bill payments. So we still have an immense opportunity for continued growth.
Similarly, the use of our features in each business line, including P. O S. QR codes and payments micro loyalty financial service promos within marketplace is still incipient, but quickly growing each month.
Rapid adoption of these products, allowing our revenue generating PPV to grow three extra piece of our total TPB, which has grown from nonexistent in early 2022 to one 5% at the end of Q1 Q3.
Long term aspiration is above 20% please turn to the next slide.
Unitary economics continued to move towards unexpected breakeven in 2024.
Revenues are growing and moving closer to cash cost as we incorporate new features mostly revenue per active user stands at 2.9 saw a lift in the quarter compared to a cash cost per active user of $4 three soldiers.
Q4 will be key in the episode of Alicia toward a super App with multiple product launches in marketplace. Yeah, but then that will initially focus on electronics, which typically represents 50% of E. Commerce sales were also launching other high engagement products, such as ticketing through our acquisition join us gaming and gift.
Cards.
In financial we are introducing small multifamily loans with longer tenures through 100000 preapproved fleets in payments, we're competing on a portfolio of solutions with FX transactions and remittances among others.
We are also providing collateral services for CPG companies.
On the functionality. This front, we're enhancing our UX to include a critical capabilities of our Super App.
So as you can see we're going to remain very busy yet be continue continued to progress towards monetization by pursuing its medium term target of being the payment. The main payments network in Peru, being an integral part of your business the life and addressing their financial requirements. We look forward to updating you again in the future on our continuous progress.
I'll turn the call back over to Susan.
Thank you Raimundo.
I will shift now to key financial highlights of the quarter, focusing primarily quarter over quarter evolution to emphasize the recent shifting trends.
Both the structurally long term low cost deposits at all positively quarter over quarter growth in a structurally loans measuring arbitrage daily balances stood at 1% fueled primarily by retail banking at BCP. Meanwhile, low cost deposits grew one 2% and accounted for 59% of our funding base at all.
And similarly, most of our income stream reduced their relevant sequential increases NII grew one 6% driven by asset mix dynamics, which were partially offset by a higher cost of funding for bank deposits.
This also grew one 6% off the back of positive dynamics EMS revenues from debit card collection services and Bill payments insurance underwriting result, Rose 11, 6% as earnings in the life business continue.
To trend upwards, we navigated asset quality headwind Trust Bureau credit cycle continued to deteriorate as such because of reeds each hub to two 5% structural npls ratio stood at five 6% given the weak economic performance took a toll on payment performance in that specific segment.
All in all we delivered resilient results despite negative GDP growth and have maintained solid capital levels at our subsidiaries. How do you see that a note of caution is in order to see US will elaborate later the recent changing macro unkindness perspective will more than likely weigh significantly in our.
Profitability for the rest of the year.
Next slide please.
In the third quarter. The Peruvian economy is suspected to have reduced their third consecutive quarter decline year over year. Accordingly unveiled G. D people, though will be lower than expected and it's down a road zero or slightly below.
Factors, both expected and unexpected heartburn reading weak performance for the social protest at the beginning of the year, which were prolonged in the country's out second climatic events, namely cyclone Yahoo, and El Nino state of which heavily impacted agricultural fishing and manufacturing sectors I will go into more detail on it.
Nino topic on the next slide third very weak private investing on a sluggish consumption led to non primary sector and are on track for the GOR in its efforts to stimulate economy heartbeat insufficient.
It's important to note that growth in the mining sector, mainly to increase copper production at Kittila Baker has remained a bright spot.
The confluence of these factors has led the country to reduce that it's always pretty poor economic performance in 25 years, excluding the pandemic. Despite these disappointing performance there room macroeconomic fundamentals remain robust with low levels of public debt and high international reserves. Additionally, they didnt have significant backup.
Public and private private projects that in back by political intent and deploy quickly could generate growth down the road.
Regarding inflation price pressures have eased in Peru, and inflation expectation is falling. Additionally, the policy rate has been good by 50 basis points.
Next slide please.
The El Nino State a weather phenomenon that has directly affected Peru.
This year is associated with a sustained rise in sea surface temperature above certain thresholds, along the north central coastal El.
El Nino stable has battery the fishing agriculture and textile sectors in particular in the first eight months of the year the efficient sector reset to record. These wars actually catching 25 years after the fittest fishing season, Wisconsin.
Culturally our production in term is expected to reduce series water performance in 31 years quite pixel production has record is more market decline in 28 years, excluding the pandemic and the global financial crisis, given that there was no winter season. This year in the coastal region.
With performance in these key sectors of the economy has exercised a multiplier effect and exacerbated contraction in the known primary sectors. Given this context, we continue to closely monitor the evolution of El Nino and it's impacting our businesses I will look at the expected evolution El Nino through the summer.
24, and its potential impacts late mix.
Next slide please.
BCP results were impacted by economic downturn described early this has pressured provisions our and impacted long road analyzing key quarter over quarter and dynamics. The one 5% increase in NII was driven by several dynamics on the mix side wholesale loans reduced our contractual due to low private investor.
While SME PMA launch reporting an upswing in disbursements that entail less risk.
The mix helps us mitigate an increase in the funding costs, which was pressured by a more expensive deposit mix. It is important to note that migration from low cost time deposits has decelerated in recent months this quarter BCP seeing gold was bolstered by an uptick in fees from debit cards collection services of business.
Lyons and Bill payment services provided through yet.
Provisions remain high in a prolonged recessive high inflationary environment that has affected tailing capacity. It will never work segments individually and how your research minutes in SME.
Individuals grew was driven mainly by consumer loans consumer loans and credit cards, followed by mortgages. This uptick was partially offset by a net reversal of provisions in the wholesale bank.
On a year over year basis, a 16% increase in NII was driven by raising interest rates and by a one 2% increasing a structurally loans, which was primarily attributable to an eight 1% uptick in retail banking loss loan loss provisions increased 87.
6% due to the same quarter over quarter and dynamics.
On a year to date basis operating expenses grew six 1%, which primarily reflects growth in core business higher expenses due to an increase in digital transactions and two significant investment in new capabilities.
And investment in disruptive initiatives in this context bcp's efficiency ratio stood at 37, 8% finally, our ROE stood at 20% in this quarter and 22, 2% on a year to date basis makes it slightly.
Yeah.
After a difficult first semester, where social and climate the bands as well as ongoing deceleration have heat clients hard me Banco Register at a decreasing loan origination and risk assessments and higher provisions on a quarter over quarter basis net interest income rose three 2% despite lower loan.
These favorable results reflect discipline and interest rate management, which help us offset the uptick in the funding cost in this context.
And NIM increased 80 basis points and stood at 13, 5%.
Provisions remain high this quarter, given the social protest and weather anomalies continued to impact our customer statement capacities are there.
Net income fell two 5% fueled by a drop in bancassurance fees follow a reduction in disbursements.
For year over year perspective, NII rose one 9% is fueled by an increasingly structurally loans and interest rate pass throughs, which mitigated the impact of rising funding cost me bonkers provision frozen due to the same dynamics mentioned it earlier.
On a year to date basis operating expenses Rose rose five 8%, reflecting an increasing 19 related cost income in turn grew at a slower pace, which led to efficiency ratio to rise to 52, 6%. Finally, our OE is stood at eight 3% this quarter and seven.
We're saying on a year to date basis.
Banco Columbia is facing high inflation high funding costs lower interest rate ceiling and a deterioration in economic expectations, we have adapted our strategy to record profitability.
Slide please.
Our ROA group of Pacific was high this quarter and it stood at 34.7% as we continued to capitalize in transitory tailwind in the life insurance business on top of a strong underlying business.
From quarter over quarter trends net income rose, 19% role west primarily boosted by an uptick in insurance underwriting result.
In the life business. After claims fell primarily by credit life individual life problems and increase in the name of the game of Thrones Exchange difference also contributed to the positive evolution. This quarter. These developments were partially offset by a decrease in net financial income year over year profitability.
<unk> up 37%, primarily driven by positive dynamics for insurance underwriting the soldiers in the life business pension promos reported an uptick in Ingalls, which was attributable to better prices and more favorable golar dynamics, what credit life and personal accident prone registered a decrease in service.
Next slide please.
Our ROE for the investment banking and wealth management line of business has stood at eight 2% impacted by a drop in income generation at our more volatile businesses income from our capital markets business decreased five 9% quarter over quarter pressured by market dynamics.
Negative impact at our group retiree fixed income portfolios.
Market volatility also impacted our asset management business, where England degrees by 0.8% impacted by losses in the market value of seed capital in the funds we manage.
Despite market headwinds our assets in that minus remain relatively flat growing by 2% to 4% quarter over quarter thing and the asset management unit and contracted by 1% quarter over quarter in the wealth management unit.
As we shared with you on our Investor Day, we took the strategic decision to reduce exposure to the most volatile business of these line of business. We have made progress in these shrunk, but it is important to emphasize that the process is gradual.
Next slide please.
Now, we will look at credit cards consolidate and dynamics.
Quarter over quarter basis, our structurally long measured in average daily balances grew 1% or 0.3% with FX networks growth in BCP retail banking, which has shifted away from the most vulnerable segment was offset by a contraction in wholesale banking at BCP and me Bob.
Our deposit base expanded three 5% or one 2% with ethics nailed. This evolution was driven by an uptick in time deposits and demand deposits, which was partially offset by a drop in saving deposits. Additionally, immigration with funding and solace from low close to time deposit decelerate.
Yeah.
On a year over year basis is structurally loans increased one 2% may shooting average daily balances fueled primarily by retail banking at BCP umbilical deposit balance dropped to 8% or <unk>, 5% with ethics nail true low cost deposits as part of system wide. According to replace.
63, 7% of our total deposits our market share in low cost deposits by the end of all of US stand up 43% next slide please.
Now, let me explain for England dynamics on a quarter over quarter basis core income rose one 4% on the back of an antibody, which rose one six per cent grew was attributable to a more favorable interest, earning asset mix and to our interest rate management when analyzing the resource for finkle on FX.
Transactions. It is important to note that both lines have been affected by our operation in BCP, Bolivia, where we charge fees to ethics clients to offset losses on buy sell FX transactions.
Excluding BCP, Bolivia fee income rose, two 9% quarter over quarter, and driven by an uptick in transactional levels from David Cottage collection services and <unk>.
<unk> payments at BCP and gains in efficient operations diminished two 6% quarter over quarter due to a drop against their transaction volumes had BCD.
On a year over year basis core, including increased eight 8% on the back of NII, which rose 12, 9% due to an uptick in the structure of loan volumes and our active interest rate management, excluding BCP, Bolivia fee income diminished by one 9% of the back of lower fees at three months of bad weather.
Adjusting in the fee framework applicable to a significant share of our pellets at critical capital primarily due to lower assets under management in the third Party fund distribution business. These dynamics were partially offset by gains in fixed transactions, which grew one 4% in terms of margins niche and tourists.
Margin rose nine basis points quarter over quarter to stand at six point, 11% risk adjusted NIM fell marginally over the same period due to an increase in provision and institute.
<unk> 45 per cent next slide please.
Let's look at the dynamics of a structurally nonperforming loans are.
As indicated early adverse event in 2023, a weak economic performance continued to impact client payment performance and consequently portfolio quality in this scenario.
Quarter over quarter basis growth in our structural and nonperforming loans was driven by wholesale banking, where the specific client's indisputably the uncle measure real estate sectors became delinquent in the b as well as where the debt service capacity of clients continue to face challenges due to over indebtedness unsustainable employment SME.
With low ticket sub segments had poorer payment performance I won't even call where an increase in delinquency was concentrated in already in dental clients clients impacted by social conflicts at the beginning of the year or to those affected by climatic anomalies on a year over year basis.
Truck or a nonperforming loan volumes increase due to an uptick in refinance loans from wholesale banking the evolution of nonperforming loans and retail banking I'm. Your ankle was driven by the same factors as in the quarterly analysis.
In this context the structure of coverage ratio stood at 100 point 101, 4%.
The NPL coverage ratio fell quarter over quarter and year over year, driven by wholesale banking clients, which represented deterioration that has been previously provision and the high high and have high levels of collateral. Please refer to appendix two for more details makes it slightly.
Moving on to provisions the cost of risk have re sing once again on a stand at two 5% while the structural cost of risk stands at two 6%. This reflects the fact that time payment capacity has deteriorated and onsite ongoing macro economic contraction.
Our vision for the individual segment at BCP of Rice and scenes.
I just explained payment performance has been impacted mainly to consumer and credit cards. Additionally, individuals provision for mortgages increases to reflect increase expected losses on lending to clients, who have reported an uptick in delinquencies in consumer products or ignore that entities provisions.
<unk> and the bank are all swap drilling by they don't trailing payment performance that they're just described.
The aforementioned was partially offset by rebel assessing wholesale banking after some clients in the corporate segment registered improvements in the credit ratings or kind of sales obligations next slide please.
We will review the evolution of efficiency on an accumulated basis to isolate the impact of seasonal effects operational expenses grew 11% in the first nine months of the year driven primarily by core business at BCP and disruptive initiatives are the critical level at BCP.
Business fueled growth in expenses through and that deep in it expenses related to an increase use of cloud as clients become more digital investments being highest digital capabilities and improved cyber security and moved to attract more specialized that you're talking about it.
Marketing expenses, mainly driven by the advertising to boost deposit Andy themselves expenses for disruptive initiative, a critical level increased 64, 3% at some of these initiatives has to scale up.
Operating leverage remains strong and BCB at Milan cooperating expenses remain under control, but operating income is still challenge in this context, our efficiency ratio has stood at 45, 1% for the first nine months of the year down 160 basis points year over year.
Driven by positive operating leverage at BCP and Pacific.
Next slide please this quarter profitability was sustained but solid results in our renewables have banking and insurance business ROE This quarter decreased to a stand at 16, 2%. Meanwhile, our ROE for the first nine months of the year was 70.
<unk>, 8% all in all this was all are a testament to our resilience and ability to adapt to challenging circumstances to access us caution we have decided that no additional dividends will be distributed this year now before commenting on our perspective for the rest of the year I would like to briefly discuss.
Scoring expectations on the magnitude for El Nino phenomenon forthcoming months makes it slightly.
At the time of our last conference call our outlook contemplated an el Nino phenomenon that was either a week or moderate in intensity. The combined probability of these two scenarios, where 75% equivalently projection from expected.
Experts indicate that the two most likely scenarios entail an el Nino that is either moderate or the strong intensity. The combined probability of these two scenarios is stands at 96%. Furthermore, the probability of a strong el Nino over the summer hospital by more than four fold.
Currently it stands at 49%.
It is important to consider that the levels of risk and exposure associated with this phenomenon.
Sorry by region, but are concentrated in any specific areas that experienced heavy rains and flooding.
The share of credit card loan portfolio located in impacted geographies ARIA stand at six 2%, which is comprises of 10% of retail banking portfolio at BCP and 18% of Mi bands with portfolio the levels of impact will vary across areas and clients.
We have rolled it out multiple measures to mitigate the adverse effects of El Nino on our client businesses in the country in general.
In a coordinated effort with Pacific or BCB on your ankle we have proactively developed a communication plan to educate our clients and the population about taking a specific predictive measures to mitigate potential damage to homes or businesses. Additionally, we have adjusted our underwriting policies.
The more supported clients in retail banking at BCP M. You angle.
We have also leveraged our extensive network of relationship managers, who are working with clients and advisors to started with potential financial needs and help them to be better prepared.
El Nino underway is expected to generate impacts that are as strong not catastrophic such as that seen in 19 Dean <unk> tool. For example, we are rolling our provisions and response plan with anticipation to reduce the impact and support clients next slide please.
Significantly weaker than expected economic performance for Peru, coupled with a material change in the outlook for El Nino or whether they're coming summer has triggered changes in the perspective for our business, particularly for cost of risk and consequently, our Roe.
Our newest teammates are in line with that the scenario of a moderate to a strong el Nino.
As previously mentioned our updated macro scenario for 2023 now reflects our GDP growth estimates close to zero percent with a downward risk is structurally long row measuring average daily balances remain in line with guidance Naeem and term remains resilient and such you suspect it.
The city within guidance, we now expect the full year cultural freeze to stand between two six and two 9% impacted substantially by provisions related to expected losses caused by El Nino, We still expect our consolidated efficiency ratio.
Between 45, and 47% at the BCP only Banco continue to the more straight positive operating leverage.
Given the aforementioned dynamics, our ROE is not likely to stand at around 15 515, 5% for the full year with these comments I would like to start the Q&A session.
Thank you we will now begin the Q&A session.
You would like to ask a question. Please signal by pressing star one on your telephone keypad.
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We'll pause for just a moment to allow everyone the opportunity for questions.
We also ask that you. Please only ask one question at a time. After each question has been addressed by our speakers you will then be allowed to ask as many follow ups as needed but again. Please only ask one question at a time. Thank you.
Our first question comes from Tito <unk> with Goldman Sachs. Please go ahead.
Hi, Good morning, Thank you for the call I'm, taking my question.
I guess my question, if I look at the revised guidance of 15, 5% Roe or roughly for.
For the full year, you, just given where you're coming from.
Rough math here.
That would imply about $700 million in earnings in <unk>, which would be around a 9%.
Ro.
And I assume that's all because of much higher provisions just I guess wondering if you can it does that math sound correct is that what we should expect more or less.
Thank you.
Hi, Tito. Thank you for the question I see I will say that roughly you are more or less in line and when we talk about $15. Five around is specifically this is around but you are correct that the main driver for the decrease profitability of the quarter is the increased provisions due to.
Expected losses by El Nino and if you compare the fourth quarter with the third quarter than the others. I think are relevant is the seasonal increase in expenses had BTB that happens all four quarters.
Okay, No that's very clear thanks for clarifying so I guess my follow up question would be on the provisioning how much of this is just you know you mentioned due to expected losses. When you think a lot of it will be an anticipation does that mean cost of risk should normalize next year, if so what would be a.
Is level of cost of risk for 2024, and if theres further impacts from El Nino could there be additional provisions in.
And next year as well.
Yes.
That will depend on the deal.
No.
We have.
<unk> named buzzer on the fourth quarter.
And explains the increase in the Gaza raise predictive for the whole year.
Having said that we have a strong nino will broaden aegean impacting provision during the first semester of next year.
And then we.
Based on what all what we've done in managing the portfolios more than a year's EMEA consumer market.
We expect a much more stable cost of risk during the second semester of 2000 and going forward. So we see this as a big but it will depend on the on the impact of oil and ninos.
You know there is a lot of uncertainty or or or.
D of the impact that this could have on on on the Illinois.
The site or the economy in general and specifically in the northern part of it okay.
Okay. No that's helpful and one I guess more weather related I guess, but how.
How long could El Nino go on for is is there a timeframe where you would then feel comfortable that okay. You are past the worst.
And any thoughts on that yes.
Yeah, usually el Nino.
Of course.
During December January and February can extend a little bit more or less than that.
Okay perfect great. Thank you so much.
Sure.
Thank you. The next question is from Ernesto <unk> with Bank of America. Please go ahead.
Hi, good morning, complain call her car or a close call and good morning, All your claim calling Hercules with my call. My question would be on your ROE grew her in a coordinated here I under Congress, we were rounding number but concurrently.
Create an important number of Purdue firms Goldman group media grew strong El Nino.
How should we think about you are when you connect with your article.
Well with broker Purdue higher when concur cobalt cleaner greener crew level.
Yeah, Hi, Ernesto.
No we are going to provide a guidance for 2024 in the next call bi Directionally I would say that 24, if the impact of El Nino is according to our current expectation should be relatively better than this one you didn't say that E S.
Now though has it.
Explained previously we need to really assess the impact at the beginning of the year. So we should expect a broadly more cautious created normal origination at the beginning of 2024.
Okay now I'll quote unquote, the Harmon Creek, one quick your heart from the power management.
Management has been doing a lot of Portland Airport.
Hum Kirkland pardon me for however.
We got off to a.
Moving from El Nino car, you will be thinking maybe Bruno hamburgers Embarkment co broker regarding Luton our.
Our merger with tanker dosing government Hawk regarding the way you kind of need or are you thinking about them or you will continue Bergman.
I will say that what we did in the past probably is a good reflection of our wire generally strategy.
At the beginning of the year than the expectations of the GDP grow we're starting to deteriorate, where just the general expenses trend to better adjust to the income generation capacity, we doubt it.
Yeah.
And for getting investment in the transformation of the business. So we are going to manage prudently, but we are committed to long term profitability to build capability for the future. So we are going to manage prudently, but we are not contemplating a stopping developing new capabilities in <unk>.
And the initiatives that are creating a new business for the future.
Hunker in Brooklyn.
Brokering them out quicker.
The next question comes from Geoffrey Elliott with Autonomous. Please go ahead.
Oh, Hello, Thanks, very much for taking the question. It's another one on the cost of risk outlook could you.
Just quantify for us how much of the additional provisioning that you're expecting in Q4 relates to <unk>.
Nino.
Looking like it's going to be worse than you were expecting back in in August just just trying to isolate that impact from the impact of the broader macro weakness. Thank you.
Yes.
It explains almost all of that change between our guidance on the previous or.
And basically it has two impacts.
In a specific region, which is reduced we could disappear. If we are in a strong mineral I mean, all of those had an impact on the overall economy of the country. Because there was an important level of upsells that alone channeled through the northern.
Businesses. So it has a double impact.
As I explained so I would say is I cannot give you a specific number or a or.
The amount.
The difference between both numbers, but it's basically thing by those two effects.
Thank you and if I could just squeeze another one more call.
Terrific Asian that nothing's changed but on the sensitivity to lower rates. If you could just quickly give U S dollar rates in peso.
Sensitivity to 100 basis point cut.
Yes.
Yeah.
This topic has been in review carefully internally and now we think is below than we previously communicated.
I'd below 20 basis points or 100 basis points almost instantaneous adjustment.
So.
The composition of our portfolio is flexible enough to allow us to converge to a sustainable.
Naeem.
Assuming that we can counter the effect of reducing rates with a shift in the portfolio mix.
Okay. Thanks very much.
The next question is from Thiago Batista with UBS. Please go ahead.
Okay.
Hi, guys good morning.
Watson.
What do you believe the meaningful revenue.
Yeah.
And among all good stuff.
Yeah.
Much of the.
We're ready.
Hum.
Excuse me could you repeat the first part of your question.
I had some interference.
Yes, not sure Giovanni <unk>.
I'm not sure if their lines.
Yes, but.
When you look on a couple of years.
Or what do you believe will be the main source of revenues.
Okay great.
No very clear and among the clients Oh.
How much of those guys are already you could call it declines.
Okay.
So in your first question.
We currently expect payments to continue growing as our number one.
Line of revenue.
But definitely we expect in two or three years are lending to become much more relevant so I would say that I.
Around 40%, 50% will continue to be payments revenue than a third.
The the lending on and the rest will be come from the retailer marketplace, that's more or less where we are.
Aiming to and what we expect of course that might change a bit regarding the second part of the 10 million clients.
It's a tough question because there were.
A lot of so there's like two two and a half million of those clients that are a debit with they may either be opened exclusively an account without being BCP clients, but of the ones that we're.
Where BCP clients, there's a big group that opened the BCP account to have yet been in the history. So really it's a.
It's a mixed number and definitely a lot of those clients are much more active in Europe than at BCP.
So.
I don't know if it's half on top of the 10 million of I would say that you called out two of them together.
Perfect. Thanks.
The next question comes from Yuri Fernandes with JP Morgan. Please go ahead.
Hello, everyone I have a question on revenues.
So far so good right you are you'll have margin, explaining so where NII is still really healthy, but what is the outlook for 2024, because you already mentioned that credit origination to be lack luster, given like a more cautious optimism and makes total sense.
Have a lower a lower rates right that shouldn't be bad for your sensitivity on margins.
And on the fee side, I guess I call them, you're right. So my question is what should we expect for revenues NII for the next year. So it will be a little bit more cautious on these also like what is the I know you don't have a guidance, but just not train Watson to me the ultimate care for core revenues. Thank you.
Thank you Judy.
Think if we have then the impact of El Nino as we expect we should expect on a slight increase in revenues that is the combination of our Monash NII.
Increasing volumes, a starting probably in the second quarter of the year in terms of fees, we still expect an increasing fees driven by the transactional activity that we are developing an increasing true there our traditional channels in Europe in particular.
But I think like low sort of accelerating by 124 versus 2023 are simply mean that bowls are low single digits, just as one more more combined inconsiderate.
Single digits.
Still expect next year GDP to be around 2% no booming year.
No Super clear and if I may just asset quality, just since if I got correctly.
<unk> acquired or the third Q, we had a very heightened NPL formation and higher charge offs. So this was basically the clients' payment behavior, what's you're right. The provision is everything we saw now in the 40 plus do you think we should see on the guidance. This is the only U S D.
Yes.
More or less the delta should be mostly down in rates. So this quarter basically bad macro and for the next quarter, a little bit of bad macro but also they'll need right is this correct like news on this thing on asset quality.
Totally correct.
At present, we are.
Ending up.
Jason.
Ah but.
Portfolio, we had during the year, but mostly by main body, but Meanwhile, you have mentioned.
Perfect. Thank you very much guys.
The next question is from Sergey <unk> with HSBC. Please go ahead.
Yes Hello.
Although my questions would be on <unk>.
The quality and cost of risk.
I'm very surprised.
Do you see this.
You know a significant jump in Q3.
Especially in wholesale loans.
Anything else I should say could you comment what do you mean by.
'twenty two.
22% of credit card NPL volumes, which will refinance loans one of these loans.
Well basically what we have done.
It had been two specific cases in the tourism sector, and then real estate commercial real estate.
Volume in default, which are recognizing in the npls, but also we are now that the activity is starting to recover and some of those.
Those businesses I mean, we have a we are able to predict our cash flow for lumpiness, we are refinancing those moments.
That portfolio is included on the NPL ratio.
Basically why why this number has been growing during the year.
So.
Are you, saying that.
These.
Loans are these.
These borrowers had hit problems, then you basically refining or refinance the loans.
With that they're going to be performing again I don't quite understand like how are these are these.
Borrowers in trouble.
Is that just an issue of <unk>.
Having you extended then.
Maybe softens in terms, so that they can pay on a on a different schedule or how should I think about the underlying credit quality of these borrowers, yes, I mean, two things about about your appointment.
Alongside we weren't managing the short term because we weren't unable to project cash flow in the long term once we extend and structurally.
The final term of the loans we.
Mark them as refinance loans and then we included them.
In the in the NPL ratio.
Having said that these are loans that have significant collateral mostly over 150% because they are basically <unk>.
And real estate projects, which are.
Guarantees that support extensively in the amount of volume expectation with those clients.
Okay. So this at the moment as borrowers are paying right, they're not in default, they're paying on what you know as you refinance that they continue to pay interest and principal was that is that correct. Yes, basically they were before they were being on the end there is no new areas.
Starting to abate Brinci Boswell.
Okay.
Alright, and then also on the consumer book My impression my very distinct impression from the last call was that you guys would.
Once you've communicated actually was that you've tightened our credit standards in the consumer book you. Obviously foresaw this macro you know Mac.
MACRA pain, so to speak so you've tightened credit standards I was on the impression that that should help.
In Africa.
Asset quality, but it doesn't look like that wasn't really what transpired silicon can you explain why.
Your reduced risk appetite didn't translate into.
Barak, great quality on the consumer book side.
What we're doing is refocusing on our appetite on those planes are we know better and that that's that that's basically what explains why why we are growing in their consumer in the consumer portfolios basically.
In in term in times like these when when we don't have Oh.
GDP growth, we obviously become more conservative in our approach to those banks that we know we know better we still do some some biologics.
Specific payment, but relatively without much less proportionate to what we have done in the previous years, but basically what explains that our of our strategy.
Probably may I add something but I think what I understand what you are hearing too.
Of course, we adjust our trading origination policy and the new vintages are being originated in a naturally are coming with lower risk profiles.
They already book loans has soured as a suspected so we have a combination of all books that her already deteriorating in a higher rate.
Great and new vintages that are smaller in size higher.
A higher quality and the results that you are going to see during the next quarter is a combination of these two dynamics.
Okay, and then is there any way to so I'm going to put a linear side because that's completely unpredictable phenomenon that depends on the nature of its not up to you I understand all that but if you looked at your.
Underlying.
Borrower health, so to speak and kind of what.
Cost of risk trends in NPL trends again, putting aside for a moment.
I think that we sort of at the bottom of this cycle.
Or there's more pain.
If it's later how much more pain, we're going to see in here.
Yes.
Our expectation.
Outside of that you mentioned is that we would.
Rich.
The higher cost of risk.
During this year.
And even in 2020 board that would be.
We will see that we would have seen.
<unk>, obviously had that dominion.
It's around the corner, so we have to consider that on Alberta.
Okay. So Exxon Nino you should see decline in cost of risk.
In 2023.
For this.
<unk> I also want to emphasize that we are shifting gradually the portfolio towards a more retail so the coastal fleet for a specific portfolios are going to decline, but the long term trend is to shift the portfolio towards a more retail one that entail higher cost of risk that's important too.
No that's a longer trend.
In the short term youre going to like maybe that's a question I would certainly like in the shorter term.
Uh huh.
It may be pulled back on retail a little bit and really.
Managing risk because I don't think that's where a lot of pain.
No. There is no change in the strategy what is an adjustment to to react to the current macroeconomic conditions.
Adjustment in a specific set of tools that are more vulnerable, but the long term strategy remains.
The same I would say in general terms.
Okay, and then last question on that because it's also related so as of.
I believe as of Q3, you had 3.1% of your <unk>.
Loan portfolio, which is these vacs diva loans right.
So they are very.
The only.
You know, they're very thinly covered grades it's only 17% I think NPL coverage on that specific segment.
Because obviously the government backed.
So if you.
Now, let's assume we're going to all of that will be paid down by the end of the year. When you when you grow.
Our retail book.
From an year on year.
That you originated loans and retail that would have to be covered.
Up from 17% to probably I don't know.
100%.
So was that how much if that's if I'm describing the dynamic correctly.
What would be the incremental delta in the cost of risk that you would see from that specific point.
I can give you some general comments and after Reynaldo can complement me firstly the reactive out long at this point is around 4 billion solid family is not going to be entirely paid down at the end of the year.
The deleverage of coverage as significant a wholesale part is 84% 91 in retail BCB and 97% in the bank.
The risks associated with these is substantially covered by the government and this portfolio is going to be paid down substantially over the next year, but not at the end of the year. The payment of this year could be around 900 millions.
Of the $4 billion.
Having said that I mean, a euro assumption that these will require higher provisions. This is true but also we will provide a much higher margin you got to remember that indirect iva launch there were very very low and government funded.
Interest rates that Theyre almost.
Only covered in operating ratio operating costs back back to normal they will provide a much higher yield on those loans as well governed will compensate the hydro reasons you mentioned.
Okay. Okay. So so by the end of the year only 100 mill and we'll pay down and then there'll be paid down gradually over next.
<unk> 16 months or whatever so.
Yes, I know that you saw us grow retail book longer term, but again, given the macroeconomic pain.
And then the tell me more coming up.
I think it would be prudent to.
Perhaps I've emphasized wholesale book more than this in the next 12 to 16 months or are you still there.
Emphasize retail as well like I'm, just trying to see how you think about growth in this challenged environment.
Well, we view the experimentally today, we see it broker to adjust our underwriting policies on the specific segments that could be affected in the northern side of Peru and dose.
Specific introduced excuse me, one agriculture that could be a big debt, but that's an environment and the revisions I mean, we will see how that evolves and then we will adjust it.
Are there further or relapsed or well below our underwriting policies as well.
Brokers are here today, we are providing.
The best information, we have at hand.
I think its worldwide to remember that this is a cyclical event, we have experienced differing levels of Nino each five seven years has been several.
Severe ninos in the past and we have developed the capacity to manage that the whole country is not paralyzed by El Nino.
During the presentation, we shared some figures relating to the level of direct exposure for our credit card portfolio in the northern part is around 6% directly exposed and sold the rest of the country has spillover effects, but it's still fun.
<unk> is working and we expect a modest but a rebounding economic growth next year.
Okay alright, thank you.
The next question comes from Carlos Gomez with HSBC. Please go ahead.
Hello, Good morning, and thank you for the color.
I want to ask about expenses at the beginning of the year you mentioned that your budget for transformation was equivalent to one 5% of ROE, which we calculate it to around $195 million.
Has that changed and what is your expectation going into next.
And next year.
I think this is a more than a budget. This is an appetite and a boundary.
We adjust that according to the dynamics of the underlying business and a specific disruption initiatives. So I will say that this is a rough number that is a guy for us is a boundary, but I wouldnt qualify desktops in our budget.
Okay.
I mean should we I understand that you have been not just any during the year and should we expect more or less in 2000 and plentiful.
As I mentioned this is how I would say an upper limit and we are going to be operating under this upper limit.
Okay. Thank you.
The next question is from Andres Soto with Santander. Please go ahead.
Good morning, Thank you for your participation.
Ask questions.
My question is regarding your macro assumptions.
Non 24.
I believe you mentioned.
You have in your numbers, 2% GDP growth is that what you have.
And you know implicit for.
The cost of risk that you are guiding to this year.
Incorporates these assumptions for our 2% growth next year and when I look at the weather pattern that you're showing your presentation on slide number 10, which is quite interesting it looks like it's.
It's turning increasingly similar.
The Disney.
Disney you know to the.
1999.
97 event.
Based on that experience.
Is that the type of.
You May expect I remember back then.
The economy was growing in the year before El Nino the economy was growing 7% and it came.
While a decrease of 1% saw a dramatic slowdown.
Are you are you still expecting if it makes sense to do you expect a recovery next year, considering that the sort of El Nino.
Yes.
Hum.
I think it's a very relevant question, we still have an expectation of 2% GDP growth for 2024 that it considers and an impact of El Nino the linear considering these GDP growth is more related to a strong.
<unk> already considered and still we are considering that the year of reference as a El Nino is 2017 is also good to remember that at the end of day.
Essentially in 1998, we have a combination of El Nino and the debt crisis and international lead prices. So.
This significant drop in GDP. The dimension is a combination will have probably a stronger knee that is now expected in an international monetary crisis.
That's very helpful.
Regarding monetary policy now.
Now that.
I'd always officially in a recession.
Do you see additional space.
Actual inflation is sprinting pretty well do you.
Additional space for the Central bank to cut right.
Aggressively, but he has done or you believe that you know the.
The carry trade will prevent a more aggressive move.
I think the current trade is a factor, but another very important one is the fed funds.
Looking only to internal factors, probably the central bank will be more aggressive cutting rates, but a combination of el Nino that usually have inflationary effects in the short term and the higher for longer guidance from the fed suggest that the central Bank has only limited.
Room to decrease rates until middle of next year.
Perfect that's very clear thank you so much.
It appears there are no further questions at this time I will now turn the call back over to Chief Financial Officer, Mr. Cesar Rios for his closing remarks.
Thank you all for your questions as discussed challenging circumstances persist in Peru, given weak economic performance and higher probability of El Nino scenario worsening to moderate to strong in the upcoming 2000 tool for summer season.
Nevertheless, we are confident that the preemptive measures that we're taking together with our flexibility to adapt to changing conditions rapidly we allow us to effectively navigate these near term challenges. It is important to keep in mind that El Nino is transitory shock and historically, we have seen the economy rebound.
After prior El Nino events, we expect to see the same trend again prior to closing today's call I would like to leave you with these four key messages first critic corpus resilient and has the ability to adapt to challenging circumstances, we delivered a healthy risk adjusted margins this quarter, even as we can.
Kris provisions for a specific customer segments, we can and payment capacity, leaving a prolonged recession with regressive and inflationary environment in Peru second we have increased our efforts across different fronts to mitigate the negative impacts of El Nino on the population our customers and our businesses.
Difficult disappear on muon core are promoting preemptive actions to limit damage to homes and businesses to various educational programs. In addition, we have modified our underwriting policies for the most exposed to retail segments.
<unk> only about 6% of our portfolio is in the U S is expected to be directly impacted our teams are working closely with clients in these areas to anticipate the likely financial requirements.
Beyond the private sector, the government's capacity to unlock and execute projects will be key to jumpstart growth. There is significant is a significant package of royalties that will be key to jumpstart rule there is a.
There are a lot of price in the pipeline.
The global long term trying to transition to a green economy favors corporate consumption as a leading global copper producer with the lowest production cost and the highest copper reserves pirouettes stands to benefit from this trend does it is imperative to accelerate execution of mining projects third this.
Strength of our balance sheet prudent management and leading franchise built upon topnotch transactional capabilities provide a solid foundation for us to weather the short term challenges lastly.
We continue to investing into the future. We are remain focused on executing our midterm strategy with all of decoupling from the macro and securing a healthy long term ROE. We are committed to continue to develop our disruptive stressed trying our competitive modes, while further enhancing the efficiency of our <unk>.
Businesses through technological transformation in closing we thank you for your continued support.
And are committed to delivering on our value creation strategy. Thank you for joining us in this call goodbye.
Thank you ladies and gentlemen. This concludes today's presentation you may now disconnect.
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