Q4 2023 Intercorp Financial Services Inc Earnings Call

[music].

Operator: Fernandes, Carlos Gomez, Natalia Nirenberg, Intercorp Fin Sr. Good morning, and welcome to the Intercorp Financial Services 4th Quarter 2023 conference call. All lines have been placed on mute to prevent any background noise.

Good morning, and welcome to the Intercorp financial services fourth quarter 2023 conference call all lines have been placed on mute to.

Prevent any background noise. Please be advised that today's conference is being recorded after the presentation. We will open the floor for questions at that time instructions will be given as to the procedure to follow if you would like to ask a question also you can submit online questions at any time today using the window on your webcast and they will be answered after the presentation during the question and.

Operator: Please be advised that today's conference is being recorded. After the presentation, we will open the floor for questions. At that time, instructions will be given as to the procedure to follow if you would like to ask a question. Also, you can submit online questions at any time today using the window on your webcast, and they will be answered after the presentation during the question-and-answer session. Simply type your question in the box and click Send Questions.

Answer session simply type your question in the box and click submit questions. It is now my pleasure to turn the call over to Mr. Valentino Porto of inspire group Ma'am you may begin.

Valentina Porto: It is now my pleasure to turn the call over to Ms. Valentina Porto of Inspire Group. Ma'am, you may begin. Thank you and good morning. Today's call, Intercorp Financial Services, will discuss its 4th quarter performance, Fernandes. We are very pleased to have with us Mr. Luis Felipe Castellanos, Chief Executive Officer, Intercorp Financial Services; Ms. Michaela Casasa, Chief Financial Officer, Intercorp Financial Services; Mr. Gonzalo Basadre, Chief Executive Officer, Intriseguro; Mr. Bruno Ferreccio, Chief Executive Officer, Interligo; and Mr. Carlos Sori, Executive Vice President of Payments at Intercorp Financial Services If you didn't receive a copy of the presentation or the earnings report, they are now available on the company's website, ifs.com.be, to download a copy. Otherwise, for any reason, if you need any assistance today, please call Inspire Group in New York at 646-940-8843. I would like to remind you that today's call is for investors and analysts only. Therefore, questions from the media will not be taken.

Thank you and good morning, everyone.

On today's call Intercorp.

Well this past quarter.

23 three earnings.

We're very pleased to have with us Mr. Luis Felipe.

Chief Executive Officer, Intercorp financial services.

If you look across at Chief Financial Officer.

So services Mr. It goes all over Saturday, Chief Executive Officer.

I didn't know if that issue chief Executive officer illegal.

I was kind of a study.

Stephens, Inc for financial services.

You'll be discussing the results that were distributed by the company yesterday.

Also with.

Video presentation to accompany the discussion during this call. If you didn't receive a copy of the presentation or the earnings report.

Billable on the company's website.

Duffy to download a copy otherwise for any reason if you need any assistance today.

Today at least call it fire crews in New York at 646, 90, 408843, I would like to remind you that today's call is for investors and analysts.

Therefore questions from the media will not be taken.

Operator: Please be advised that forward-looking statements may be made during this conference call. These do not account for future economic circumstances, industry conditions, the company's future performance, or financial results. As such, statements are made based on several assumptions and factors that could change, causing actual results to materially differ from the current expectation.

Please be advised that forward looking statements may be made during this conference call. These do not account for future circumstances industry conditions, the company's future performance or financial results.

And such statements are made based on the stuff.

All assumptions and factors that could change, causing actual results to materially differ from the current expectations.

Luis Felipe Castellanos: For a complete note on forward-looking statements, please refer to the earnings presentation and reports issued yesterday. It is now my pleasure to turn the call over to Mr. Luis Felipe Castellanos, Chief Executive Officer of Intercorp Financial Services, for his opening remarks. Mr. Castellanos, please go ahead, sir.

For a complete note on forward looking statements. Please refer to the earnings presentation and report issued yesterday.

It's now my pleasure to turn the call over to Mr. Luis Felipe Castellanos Chief.

<unk> Executive officer of Intercorp financial services for his opening remarks.

Please go ahead Sir.

Yeah.

Thank you.

Luis Felipe Castellanos: Thank you. Good morning all, and welcome to our fourth quarter and full year 2033 earnings call. I want to thank you very much for attending. I want to start by making a brief summary of our strategy at IFM. You know that our aspiration includes becoming the leading digital financial services solution for clients, providing profitable products and services in our key businesses with the best digital experience for our customers, based on operational excellence, and leveraged on advanced analytics and the best talent of our competitors at that time. This is the strategy we are deploying, and we continue to execute it with a long transition. Regarding the economic environment, 2023 was a challenging year in Peru with virtually no GDP growth and a contraction in domestic demand which translated into a deterioration of the payment capabilities of our retail customers. On the positive side, inflation decreased consistently during the second half of 2023 and the central bank reduced the solid reference rate by 100 basis points during the year to 6.25%. Also, expectations of a strong El Nio phenomenon have decreased, and for 2024 Despite this challenging environment, IFS continues to show resilience in its core operations.

Good morning, all and welcome to our fourth quarter and full year 2013 earnings call.

I wanted to thank you very much for attending.

I wanted to start by making a brief summary of our strategy.

Yes.

Exploration.

To become the leading digital financial services solution for clients, providing profitable products and services.

Thank you.

Thanks, Jamie.

As for our customers based on operational excellence endeavors advisors.

And at this time as well.

Our competitive advantage.

The strategy, we are employing and we continue to execute it with a long term vision.

Regarding economic environment 2033, it was a challenging year.

With virtually no GDP growth.

Construction of the domestic demand, which translated into a deterioration of the payments.

Although our retail customers.

On the positive side inflation decreased consistently during the second half of 2023 and the Central Bank has reduced.

Yes, that's I'll just reference base by 100 basis points during the year to $6, 35%.

Also.

Thanks, just a stroke of Nino phenomenon.

And for 2020 for GDP growth.

Around 3%.

<unk>, which is a good recovery versus last year.

Despite this challenging environment.

<unk> continues to show resilience its core operations.

Luis Felipe Castellanos: In 2023, we grew our customer base and relevance, and we continue to consolidate the results of our digitalization efforts. At Interbank, market shares across key business lines remain strong despite moderation in consumer loans, as we are still digesting increased levels of cost of risk, mainly in the consumer finance sector, in spite of the challenging conditions. Interbank remains world-promising and world-capital.

Obviously the three.

Our customer base and revenues and we continue to consolidate the results of our digitalization efforts at.

<unk> market share across key business lines remained strong despite moderation in consumer loans as we are.

I assume that yes.

These levels of cost of risk mainly in the consumer finance segments. Despite the challenging conditions.

The bank remains well provisioned.

Thanks.

Luis Felipe Castellanos: At Intraseguro, in 2033, we continued growing in premiums for individual life and retail insurance while consolidating market leadership in annuities. Investment results continue to be solid in the company. Although global market conditions impacted negatively our investment results in our wealth management business, in 2023 Intellivox results recovered from the negative profit posted in 2022. Finally, on payment, despite growth in merchants, volumes have moderated in 2023, and this has taken a toll on EasyPay's results. However, Interbank and EasyPay continue working on creating synergies, while Plin continues to accelerate with a fully interoperable P2P system.

And as I say in 2023, we continue to grow the business.

Our retail insurance well consolidated market leadership in annuities investment results continued to be solid in the Robert.

Although global market conditions impacted negatively.

Results in our wealth management business in Q3.

Three J D power results with cohorts from the negative profit.

In 2020.

Cool.

Finally on payments despite what the merchants have moderated in 2020 Threep and these are sticking a toe in Egypt based results. However, eastern back on each base continued working on creating synergies well continue.

<unk> continues to accelerate.

We drilled the hole <unk> features.

We remain confident that this will continue generating sustainable returns in the coming years as we are being cautious with our ratios given the scenario. We're facing today, we continue working on our long term strategy, which is to motivate.

Luis Felipe Castellanos: We remain confident that IFS will continue generating sustainable returns in the coming years as we are being cautious with our operations. Given the scenario we're facing today, we continue working on our long-term strategy, which is to ultimately empower all Peruvians to achieve their financial well-being. Now, let me pass this on to Michaela so she can give you a detailed review of our results. Thank you.

Ultimately empower all Peruvian expertise financial will be.

Now let me pass it onto became so she can give you a detailed review of our results.

Thanks, Luiz Felipe good morning, and welcome everyone to Intercorp financial services year end 2023 earnings call.

Michaela Casasa: Good morning and welcome everyone to Intercorp Financial Services' year-end 2023 earnings. Today, we will review five sections of our earnings presentation, starting with the macro outlook for Peru. On slide three, complementing what Felipe mentioned, the decrease in GDP and in inflation for four quarters in a row has triggered the first cuts in the solace rate, driving it down from the peak of 7.75 to 6.25 as of today. Inflation has decreased from yearly 8.8 at the peak of June 23 to 3% as of January, already within the central bank's target.

Today, We will review five sections of our earnings presentation, starting with the macro outlook for pet owners.

Slide three complementing what Philippe mentioned the decrease in GDP and inflation for four quarters in a row has triggered the first got seen the solid rate driving it down from the peak of $7 75 to $6 25 assets as up to date in.

Inflation has decreased from a yearly $8 eight at the peak of June 20, 323% as of January already within the Central Bank stock and exchange rate has remained relatively stable.

Michaela Casasa: And the exchange rate has remained relatively low. 2024 is expected to be a year of recovery for the Peruvian economy with an expectation of 3% GDP growth, mainly due to the following reasons. First, the base effect versus the first quarter of 2023, as no major disruption is expected now that El Nino seems to be cooling down. Second, recovery on public investment after the first year of the newly elected regional government.

'twenty 'twenty four is expected to be a year of recovery from the Peruvian economy, with an expectation of 3% GDP growth, mainly due to the thorough and reasons.

So there's the base effect versus the first quarter 2023 as no major disruption is expected now that El Nino seems to equally now.

Recovery in public investment after the first year of the newly elected regional governments.

And lastly, more political stability, which should positively impact private investment.

Michaela Casasa: And lastly, more political stability, which should positively impact private investment. On slide 4, we wanted to point out your attention to the latest news on ELI. After an inflection point in the probabilities of a strong to moderate Nino as of the end of 2023, we have started the year with very high probabilities of a non-to-weak Nino.

On slide four we wanted to point out your attention on the latest news on <unk>.

After an inflection point in the probability of a strong to moderate Nino as of the end of 'twenty 'twenty. Three we have started the year with very high probability for a known two week. Neal. This is very good news for the country as the economic recovery could speed up if no further disruption takes place in the coming months.

Michaela Casasa: This is very good news for the country as the economic recovery could speed up if no further disruption takes place in the coming months. On slide five, we are providing the main operating trends for the year ending 2023, which are all within the latest guidance provided during September. First, we continue to register sound capital levels with the core equity tier one ratio closing the year at 11.8%, and the total capital ratio at 15.5%. There has been further moderation in the yearly total loan growth to 6% as of December and 7% in consumer loans, and a stabilization of NIM at 5.5%. We continue to see good efficiency levels, both at IFS and at the bank level, as we are strictly monitoring and managing costs, especially at the bank, which has reached a cost-income ratio of around 37% as of year-end, a strong improvement versus last year, mainly due to the good operating level. However, cost of risk continues to be high in consumer lending, pushing the bank's year-end cost of risk to 4.3%, in the lower

On slide five we are providing the main operating trends for the year, ending 2002, and three which are always in the latest guidance provided during September.

First we continue to reduce their sound capital levels with core equity tier one ratio closing the year at 11, 8% and total capital ratio at 15, 5%.

There has been further moderation in the yearly total loan growth to 6% as of December and 7% in consumer loans and a stabilization of knee at five 5%.

We continue to see good efficiency levels, both ice station at the bank level as we are strictly monitoring and managing costs, especially at the bank, which has reached a cost income ratio around 77% as of yearend.

Strong improvement versus last year, mainly due to the good operating leverage.

Cost of risk continues to be high in consumer lending pushing the bank's year end cost of risk to four 3% in the lower range of the latest guidance.

I used to is I believe for the full year 2023 stands at 11, 3% impacted by cost of risk at interbank in soft investments results and in technical slightly above the latest guidance.

Michaela Casasa: IFS ROE for the full year 2023 stands at 11.3%, impacted by the cost of risk at Interbank and soft investment results at Inteligo, slightly above the latest guidance. Now, let's move to the second section of the presentation, which focuses on profitable growth. On page 7, we see a continuous growth in the customer base at IFF of 11% year-over-year in banking, 6% in insurance, 9% in wealth management, and 25% in payment mergers. On slide 8, in line with the previously mentioned macro scenario in the previous quarter, we have further moderated banking activity by tightening credit standards, which had an impact on credit and debit card purchases as well as in retail and SME loan distribution. Reduced activity in banking and an increased cost of risk in the consumer portfolio have impacted banking earnings and ROE, while investment returns have impacted wealth management results.

Now, let's move to the second section of the presentation, which focuses on profitable growth.

On page seven we see a continuous growth of customer base that you faced or 11% year over year, and 19, 6% and insurance, 9% in wealth management and 25% in payment terms.

On slide eight in language previously mentioned macro scenario in previous quarter. We have further moderated banking of CVT like tightening credit standards, which had an impact in credit and debit card purchases as well as in retail and SME loan disbursements.

Reduced activity in banking and increased cost of risk in the consumer portfolio, having factored the banking earnings and narrowly while investment returns impacted wealth management results. This quarter, though we have positive news in the insurance business, which posted solid investment results with this.

Earnings are at 286 million soldiers and narrowly at 11, 6% for the fourth quarter driving the full year earnings to 1080 million soles and narrow it to 11, 3% as shown in slides nine and 10.

Michaela Casasa: This quarter, though, we have positive news in the insurance business, which posted solid investment results. With this, IFS earnings are at 286 million soles and ROE at 11.6% for the fourth quarter, driving the full-year earnings to 1,080 million soles and ROE to 11.3%, as shown in slides 9 and 10. On slides 11 and 12, Good News on the top line, as total revenues continue to grow 4% in the quarter and 10% for the full year, thanks to the growth rate in banking of 10%, and wealth management growing more than eight times from a low base in 2022. Insurance is growing one percent and payments five percent. On slides 13 and 14, we wanted to give you more details on the risk profile of the portfolio.

On slides 11, and 12 is good news in topline as total revenues continued to grow 4% in the quarter and 10% for the full year. Thanks to the growth of it used to in banking of 10%.

Wealth management growing more than eight times from a low base in 2022 insurance growing 1% and fight in payments 5%.

On slides 13, and 14, we wanted to give you more details on the risk profile of the portfolio.

First of all we wanted to mention that 44% of inter bank portfolio is focused on commercial banking, which continues to behave nicely mainly due to our conservative approach, which has always focused on low risk clients and has had a small participation in small and micro companies.

This conservative approach has allowed us to maintain a lower PD L versus our peers to balance how high your focus in the riskier consumer portfolio on.

Michaela Casasa: First of all, we wanted to mention that 44% of Interbank's portfolio is focused on commercial banking, which continues to behave nicely, mainly due to our conservative approach, which has always focused on low-risk clients and has had a small participation in small and micro companies. This conservative approach has allowed us to maintain a lower PDL versus our peers to balance our higher focus on the riskier consumer portfolio.

On the consumer portfolio, we have three different risks.

First the unsecured consumer portfolio, which is the one being impacted by the macro scenario in which represents 22% of the total loan book.

Second mortgages, which are also 22% of the loan book and third favorable deductible loans to the public sector employees are low risk segment, which represents 12% of the total loan book.

This quarter cost of risk of the bank remains high at five 2% with retail cost of risk at eight 3%.

Michaela Casasa: On the consumer portfolio, we have three different risks. First, the unsecured consumer portfolio, which is the one being impacted by the macro scenario and which represents 22% of the total loan book. Second, mortgages, which are also 22% of the loan book. And third, payroll deductible loans to public sector employees, a low-risk segment which represents 12% of the total loan book.

Coverage ratio for the retail portfolio remains strong at 194% and above pre COVID-19 levels commercial banking cost of risk casting a slight increase with an improvement in coverage ratio.

On slide 14, we are giving you an update of the reschedule niche in the consumer loan book during the last quarter of 2023. This rescheduled <unk> represent 20% of the unsecured consumer loans and have increased only 100 million solace.

Michaela Casasa: This quarter, the cost of risk of the bank remains high, at 5.2%, with retail cost of risk at 8.3%. The coverage ratio for the retail portfolio remains strong at 194% and above the pre-COVID level. Commercial banking cost of risk has seen a slight increase with an improvement in coverage. On slide 14, we are giving you an update on the reschedulings in the Consumer Loan Book. During the last quarter of 2023, these reschedulings represent 20% of the unsecured consumer loans and have increased only by 100 million euros. Payment behavior for performing loans is different for customers with rescheduled repayments. The unpaid portion for regular clients is only 2%, while it is around 14% for rescheduled clients for installments matured as of December.

Damian behavior for performing loans is different for customers with rescheduled the unpaid portion for regular clients is only 2% while it is around 14% for reschedule clients four installments matured as of December.

Finally on this section on slide 15, we wanted to highlight the tight management of costs, we continue to pursue which shows a 5% decrease in total expenses for the fourth quarter of 2023, and 6% reduction at interbank versus the previous year.

With this total expenses for the full year has only increased 2% of iff's, maintaining the efficiency ratio below 37%.

Cash increased only 1% at interbank driving the cost income ratio down more than 300 basis points to 37, 3%.

Michaela Casasa: Finally, in this section, on slide 15, we wanted to highlight the tight management of costs we continue to pursue, which shows a 5% decrease in total expenses at IFS for the fourth quarter of 2023 and a 6% reduction at Interbank versus the previous year. With this, total expenses for the full year have only increased 2% at IFS, maintaining the efficiency ratio below 37%, and have increased only 1% at Interbank, driving the cost-income ratio down more than 300 basis points to 37.3%. Moving on to the digital performance section of the presentation on slides 17 and 18, we are continuously building 100% digital solutions for our customer journey across our business. We have positive news on our digital indicators, which continue to show nice trends when compared to the previous year. As of December 23, digital customers, which 75% of retail customers who interact with the bank during the last 30 days, were up four points in the past year. Digital sales reached 63%.

Moving on to the digital performance section of the presentation on slide 17, and 18, we are continuously building, 100% digital solutions for our customer journey across our businesses.

We have positive news in our digital indicators, which continue to show nice strength when compared to the previous year.

As of December 23, digital customers reached 75% of retail customers, who interact with the bank during the last 30 days up four points in the past year.

<unk> sales reached 63% and our digital self serving indicator has improved sharply from 77% to 82%.

M. P. S has seen other day ratio for the first time in many quarters, mainly impacted by the actions related to risk profile.

Insurance and wealth management digital indicators show positive developments as well with digital self service, reaching 59% at industrial Moodle.

So I'd sales, reaching 82% and digital premiums still small, but reaching 10% at industrial corridor, and digital transactions, where fund management, reaching 48%.

I think their phones.

Now, let's move to some more details on the performance of our four key businesses on slides 20 to 30.

On slide.

'twenty one.

We have seen.

Then we have seen a year over year growth at the bank this quarter.

Michaela Casasa: And our digital self-service indicator has improved sharply from 77% to 82%. NPS has seen a deterioration for the first time in many quarters, mainly impacted by the actions related to risk profiling. Insurance and wealth management digital indicators show positive developments as well, with digital self-service reaching 59 percent at Interseguro, up sales reaching 82%, digital premiums still small but reaching 10% at Interseguro, and digital transactions for fund management reaching 48% at Interfax. Now let's move to some more details on the performance of our four key businesses on slides 20 to 30, on slide. 21, we have seen. Then we have seen year-over-year growth at the bank this quarter, with net interest income growing 13%. Let me go back, sorry.

With net interest income growing 13%.

Let me go back sorry on slide 20, starting with banking and in line with our focused strategy. We continue increasing market shares reaching 15, 1% in retail deposits nine 6% in commercial loans and retail loans at 19, 1% as of December 2023.

There are a couple of things that we have been working hard in the past month and that are bringing nice results as shown in the market share increased to 14, 7% in payroll inflows from 13, 6% one year ago, and 17, 7% market share in sales financing up from 11, 7%.

Just 12 months ago.

Now on slide 21, we have seen a 10% year over year growth of the bank this quarter with net interest income growing 13%.

Mainly from increased volume and yield on loans, 2% growth in fee income and 4% in other income.

Michaela Casasa: On slide 20, starting with banking, and in line with our focus strategy, we continue increasing market shares, reaching 15.1% in retail deposits, 9.6% in commercial loans, and retail loans at 19.1% as of December 2020. There are a couple of things that we have been working hard on in the past month and that are bringing nice results, as shown in the market share increase to 14.7% in payroll inflows from 13.6% one year ago and the 17.7% market share in sales financing, up from 11.7% just 12 months ago. Now, on slide 21, we have seen 10% year-over-year growth at the bank this quarter, with net interest income growing 13%, coming mainly from increased volume and yield on loans, 2% growth in fee income, and 4% in other income. On slide 23, there was a decrease in yield on loans of 30 basis points, reaching 11.3%, and NIM decreased 10 basis points to 5.5%. Risk-adjusted NIMS decreased in the quarter in line with the increase in the cost of risk of consumer loans.

On slide 23, there has been a decrease in yield on loans of 30 basis points.

Reaching 11, 3% and NIM decreased 10 basis points to five 5%.

Risk adjusted NIM decreased in the quarter in line with the increase in the cost of risk of consumer loans.

Good news this quarter is that cost of funds remained flat at four 2% as shown in slide 24 as.

As we start to see the first impact of a decrease in the solid rate of cost of funds has been rising in the past.

Market level, mainly due to two reasons.

First the continued migration of retail deposits to more expensive term deposits both in solid and the higher remuneration to commercial and institutional mainly in dollars as rates have continued to increase correction in another nine deposits right in solid continues though at a slow speed pace our loan to deposit.

The ratio of 103% is in line with the industry average positive news is that the deposits continued to increase its share in total funding and the retail deposit market share has continued to increase.

Now moving to insurance.

Premiums were down.

4% in the quarter and market share of annuities was 26, 4% as of November 23, individual life and private annuities business lines continue to grow nicely quarter over quarter, or 6% and 40% respectively, increasing their contribution to total premiums on slide 12.

Michaela Casasa: The good news this quarter is that cost of funds remains flat at 4.2%, as shown in slide 24, as we start to see the first impacts of a decrease in the solace rate. Cost of funds has been rising in the past at market level, mainly due to tourism. First, a continuous migration of retail deposits to more expensive term deposits, both in soles and dollars, and higher remuneration to commercial and institutional, mainly in dollars, as rates have continued to increase. Correction in overnight deposit rates in soles continues, though at a slow pace.

Five the quarterly with turnover in the investments of the portfolio gain extraordinarily high at seven 2% compared to the previous quarter, mainly due to some dividends received from particular investments. The insurance portfolio is composed of 86% fixed income.

9% real estate, and 5% equity and mutual funds.

December 23.

Let me move now to in wealth management with Newsy with management with the yearly growth.

Michaela Casasa: Our loan-to-deposit ratio of 103% is in line with the industry's average. However, positive news is that deposits continue to increase their share in total funding and that the retail deposit market share has continued to increase. Now moving to insurance, premiums were down 4.4% in the quarter and market share of annuities was 26.4% as of November 2020. However, individual life and private annuities business lines continue to grow nicely quarter over quarter or six percent and forty percent, respectively increasing their contribution to total premium. On slide 25, the quarterly return over the investment of the portfolio came. The insurance portfolio is composed of 86% fixed income, 9% real estate, and 5% equity and mutual funds as of December 2013.

In asset under management, and 4% growth on a quarterly basis. This quarter, we saw a negative impact from investment.

Results, but the core business continues growing.

Payments, we wanted to give you a summary of the developments of our payment ecosystem growth in merchants in volumes continues with some moderation ECP merchants increased 25% year over year, reaching $1 3 million, while transactional volumes grew 3%.

E Commerce transactions are growing at the same pace and represent 16% of our total transactional volumes as of the end of December.

In the case of easy pay yacht our solution for micro merchants growth in merchants was 35% and was very strong in transactional volumes are 70% all of which are linked to an inter bank account.

On slide 28, if they represent a growing and profitable operation and he's working on creating synergies with interbank.

Michaela Casasa: Let me move now to wealth management. Good news in wealth management with yearly growth in assets under management and 4% growth on a quarterly basis. This quarter we saw a negative impact from investment results, but the core business continues growing. On payments, we want to give you a summary of the developments in our payment equation. Growth in merchants and volumes continues with some moderation. EasyPay merchants increased 25% year over year, reaching 1.3 million, while transactional volumes grew 3%. eCommerce transactions are growing at the same pace and represent 16% of our total transactional volumes as of the end of.

Revenues continue to grow 1% on a yearly basis and 13% in the quarter supported by the increase in transactional volumes and merchants with some pressures on Mds coming from increased competition, we have seen a moderation in the transactional volume this quarter in line with a decrease in economic activity.

S market share continues to increase reaching 57% in physical acquiring and almost 24% in there toward acquiring.

And did that have seen a contraction in the quarterly figures due to margin compression in a more competitive landscape.

We have been working to accelerate the growth of our payment ecosystem by having all of our assets work towards a common strategy. We are focusing on increasing transactional volumes offering merchants additional services continued to pilot low risk loans to merchants in use easy pay as a distribution network for interbank photos as.

Michaela Casasa: In the case of EasyPayYar, our solution for micro-merchants, growth in merchants was 35% and was very strong in transactional volumes of 70%, all of which are linked to an interbank account. On slide 28, EasyPay represents a growing and profitable operation and is working on creating synergies with Interbank. Revenues continue to grow, 1% on a yearly basis and 13% in the quarter, supported by the increase in transactional volumes and merchants, with some pressures on MDRs coming from increased competition.

Well as a source to increase growth.

We are starting to see results from this strategy as evidenced by the following four key figures.

25% yearly increase in ECP flow coming to interbank accounts and 48% increase in average balances for Americans.

One five times yearly increase in transactional volumes from micro merchants, thanks to ECP in more than 5000, new credits is nursing a test of the new lending model to merchants.

On slide 29 clean has been accelerated by the new landscape of interoperable P to P system.

Michaela Casasa: We have seen a moderation in the transactional volume this quarter in line with the decreasing economic activity as market share continues to increase, reaching 57% in physical acquiring and almost 24% in virtual acquiring. We have seen a contraction in the quarterly figures due to margin compression in a more competitive environment. We have been working to accelerate the growth of our payment ecosystem by having all of our assets work towards a common strategy. We are focusing on increasing transactional volumes, offering merchants additional services, continuing to pilot low-risk loans to merchants, and using EasyPay as a distribution network for interbank products, as well as a source to increase flow.

Clean reach more than 14 million users as of the end of December with interbank participation at 46%.

The volume of transactions has continued its strong growth, reaching two four times the volume registered the same quarter one year ago.

Clean and Yelp interoperability started in April.

And QR code interoperability was added in September this has been an important development for financial inclusion in the country, which the central Bank has encouraged and which should help to bring more peruvians into the financial system, reducing the use of cash which continues to be high in the country number of transactions have increased.

Michaela Casasa: We are starting to see results from this strategy as evidenced by the following four key figures: 25% yearly increase in easy pay flow coming to interbank accounts and 48% increase in average balances from Merck. 1.5 times yearly increase in transactional volumes from micro-merchants thanks to EasyPay GI and more than 5,000 new credits disbursed in our test of the new lending model to merchants. On slide 29, PLING has been accelerated by the new landscape of interoperable P2P systems. Plin reached more than 14 million users as of the end of December, with interbank participation at 46%. The volume of transactions has continued its strong growth, reaching 2.4 times the volume registered in the same quarter one year ago. Clean and Yap interoperability started in April, and QR code interoperability was added in September.

Two three times seems neocart interoperability stock.

On slide 30, moving to our ESG update we have reinforced our sustainability strategy.

Our efforts in the last 12 months have allowed us to reach 61 points in the 2023 corporate sustainability assessment with an improvement of 11 points from the environmental dimension. Moreover, we have been included in the standard <unk> Poor's Global sustainability Yearbook 2024 based on our 2023.

CSA scores.

On the social front ECP, yet in our financial services education platform up and demos are positively contributing to financial inclusion on.

On the environmental front, we are increasingly involved in green and sustainable financing by helping our customers grow their businesses in a sustainable way.

Interbank has.

Pain, a green certificate from Enel that certifies the conception of renewable energy in 2023. Other main headquarters it has signed a contract with <unk>.

Michaela Casasa: This has been an important development for financial inclusion in the country, which the Central Bank has encouraged, and which should help to bring more Peruvians into the financial system, reducing the use of cash, which continues to be high in the country. The number of transactions has increased 3.3 times since the interoperability started. On slide 30, moving to our ESG update, we have reinforced our sustainability strategy. Our efforts in the last 12 months have allowed us to reach 61 points in the 2023 Corporate Sustainability Assessment, with an improvement of 11 points on the environmental dimension.

Now, let me move to the final part of the presentation, where we provide the guidance for 'twenty 'twenty four and some takeaways.

On slide 32, 'twenty 'twenty four guidance goes as follows.

First capital ratios to remain at some level with total capital ratio above, 14% and core equity tier one ratio at around 11%.

Second our continued path to recovery towards our midterm target in core profitability with 'twenty 'twenty, four I face Roe above 12%.

In terms of loan growth for 2024, we expect mid single digit growth in total loans.

For 2024, we are focused in the NIM guidance on interbank, we expect interbank NIM to be stable and above five 5%.

Michaela Casasa: Moreover, we have been included in the Standard and Poor's Global Sustainability Yearbook 2024 based on our 2023 CSA score. On the social front, Easy Pay Ya! and our financial services education platform, AprendeMás, are positively contributing to financial inclusion. On the environmental front, we are increasingly involved in green and sustainable financing by helping our customers grow their businesses in a sustainable way. Interbank has obtained a green certificate from Enel that certifies the consumption of renewable energy in 2023 at our main headquarters.

Cost of risk is expected to remain high in 2024 above pre COVID-19 levels and reached a number below four 3%. That's below 2023. It is important to remember that we included a moderate Nino phenomenon in our forward looking variables during the second half of 2023.

And last we will continue to focus on efficiency and specially on positive operating leverage I used this efficiency ratio is expected to be around 37% one of the best in the region.

On Slide 33, let me finalize the presentation with some key takeaways.

First after a weak 2023 macro sentiment for 'twenty 'twenty four is relatively positive with minor disruption expected from anemia.

Michaela Casasa: It has signed a contract. Now, let me move to the final part of the presentation, where we provide the guidance for 2024 and some takeaways. On slide 32, the guidance for 2024 is as follows. First, capital ratios to remain at sound levels with the total capital ratio above 14% and the core equity tier 1 ratio at around 11%. Second, a continued path to recovery towards our midterm target in core profitability, with the 2024 IFS ROE above 12%. In terms of loan growth for 2024, we expect mid-single-digit growth in total loans.

Second good performance in insurance business and positive investment results in wealth management.

Third retail and more specifically consumer finance cost of risk remains high that with strong coverage ratios.

For tight management of course reflected in solid efficiency levels.

Cost of funds step stabilizing and solid rates outlook.

And we are strengthening our vision of digital positioning and presence in payments.

Thank you very much and now we welcome any questions you might have lending only just mentioned that we have recently been notified that Ah you face has being included again in D. M. S. Cie small cap index.

Now we welcome any questions you may call.

Thank you at this time, we will open the floor for questions.

Michaela Casasa: For 2024, we are focusing the NIM guidance on Interbank. We expect Interbank NIM to be stable and above 5.5%. The cost of risk is expected to remain high in 2024 above pre-COVID levels and reach a number below 4.3 percent, thus below 2023. It is important to remember that we included a moderate Nino phenomenon in our forward-looking variables during the second half of 2020. And last, we will continue to focus on efficiency, especially on positive operating leverage. The IFS efficiency ratio is expected to be around 37%, one of the best in the region.

First of all I'll take the questions from the conference call and then the webcast questions.

If you would like to ask a question. Please press the star key followed by.

The one key on your Touchtone phone questions will be taken in the order in which they are received if a anytime you would like to remove yourself from the question in queue. Just press. The Star then the number two again to ask a question. Please press Star then one.

For the webcast viewers simply type your question in the box and click submit question.

I'll pause momentarily took a powerless.

<unk>.

And the first question will come from Ernesto Gabby Rando with Bank of America. Please go ahead.

Thank you hi, good morning, Felipe and Michela good morning to all your team.

Thanks for the opportunity to ask questions.

I have three questions from my side.

The first one is on your cost of risk guidance.

Michaela Casasa: On slide 33, let me finalize the presentation with some key takeaways. First, after a weak 2023, macro sentiment for 2024 is relatively positive, with minor disruption expected from El Nino. Second, good performance in the insurance business and positive investment results in wealth management. Third, retail and, more specifically, consumer finance cost of risk remains high but with strong coverage ratios for tight management of costs reflected in solid efficiency levels. Cost of Funds, Stabilizing and Solace Rate Outlook, and we are strengthening our digital positioning and presence in TAMI. Thank you very much.

So given that it seems to have changed to a low non impact.

How should we think about it goes to risk in the first quarter of <unk>.

This year.

You do have a very strong reserve coverage ratio. So just wondering if there's a possibility that at some point in 'twenty. Four we can have some reversal of provisions related to El Nino.

And also when do you expect the cost of risk to normalize to historical levels, because the cost of risk for this year above $4 three continues to be cars.

Your historical levels.

Then my second question is on your NIM expectations.

Michaela Casasa: Now we welcome any questions you might have. Let me only just mention that we have recently been notified that IFF has been included again in the MSCI Small Cap Index. Now, we welcome any questions you might have. Thank you.

Wanted to double check if I'm correct.

Can we expect NIM to be between stable on our NIM expansion of 20 basis points.

Operator: At this time, we will open the floor for questions. First, we'll take the questions from the conference call and then the webcast questions. If you would like to ask a question, please press the star key followed by the one key on your touch-tone phone. Questions will be taken in the order in which they are received. If at any time you would like to remove yourself from the questioning queue, just press the star key, then the number two.

This year.

Also we'd like to hear from you.

What should be the key drivers for four games in this year I don't know if it will be the recovery long road.

Probably more appetite on our consumer segment after leaving behind the impact in New York.

And also lower funding costs.

We're going to be easing cycle.

And my last question is on expenses.

We have seen that.

<unk> has been doing are important therefore to maintain costs under control.

Ornesto Gabilondo: Again, to ask a question, please press star, then one. For the webcast viewers, simply type your question in the box and click submit question. We will pause momentarily to compile a list. Thank you. And the first question will come from Ornesto Gabilondo with Bank of America. Please go ahead.

So how should we think about opex growth this year should be.

In line with inflation, a little bit above inflation.

Wanted to understand if you will continue to do investments in technology or disruptive initiatives also wanted to break it down.

March of the Opex will be related to that.

Ornesto Gabilondo: Thank you. Hi, good morning with Felipe and Michele. I have three questions from my side. The first one is on your cost-to-risk guidance. So, given that El Nino seems to have changed to a low, non-impact, how should we think about the customer risk in the first quarter of this year? You have a very strong reserve coverage ratio, so I was wondering if there's a possibility that at some point in 24, we could have some reversal of provisions related to El Nino. And also, when do you expect the cost of risk to normalize to historical levels? Because the cost of risk for this year, above 4.3, continues to be high compared with your historical level. Then my second question is about your NIMH expectations. I want to double check if I'm correct.

And also related to this question I will answer I. Appreciate if you can share with us in which part of the P&L should we start to see the results of the benefits of all these new investments.

Thank you.

Okay. Thank you very much.

But as an introduction to the auction.

So that will help us.

What we do in terms of cost of risk guidance.

Absolutely.

We don't we don't expect to have strong rates.

Got it.

To reduce revenue. However, we are living through a new phenomenon that's been the case for the whole.

We are excited to continue as you've seen in jeopardy of extremely high.

Yeah.

<unk> is also higher so.

Even though we got it.

Strong disruption through messenger.

Ornesto Gabilondo: Can we expect NIMH to behave between stable and an NIMH expansion of 20 basis points this year? And also, we'd like to hear from you what should be the key drivers for NIMH this year. I don't know if it will be the long road to recovery.

Yes.

The race.

Okay.

Okay.

Not expecting all of them have been strong throughout the year.

That's something we've done that as well.

We will.

El Nino scope impacts mainly on the industries.

In Peru that fishing like.

Right.

Agricultural.

Ornesto Gabilondo: Probably more appetite in the consumer segment after leaving behind the impact of El Nino, and also lower funding costs now that we are going through this easing cycle. And my last question is on expenses. We have seen that IFS has been making an important effort to maintain costs under control.

Wage so.

Even though.

Okay.

Paul will be more moderate or not very important.

See some disruption there. So so we have to be careful when we talk about no menu.

Having said that we do expect.

In the second half to be better than first half.

I think along with growth in our northern new ICT or some of the details.

Ornesto Gabilondo: So how should we think about OPEC's growth this year? Should it be in line with inflation, or a little bit above inflation? I just wanted to understand if you will continue to make investments in technology or disruptive initiatives. I also wanted to break it down on how much of the OPEC will be related to that. And also related to this question, I would also appreciate it if you could share with us in which part of the P&L we should start to see the results or the benefits of all these new investments. Thank you.

The only thing I can tell you actually can do some work with Bristol.

What we know as management is that.

What we can control costs, we're very focused on that.

That discipline will continue.

In June basically.

No.

Our strategy in our ratios, but the central premise as we continue investing in building our future. So we won't sacrifice the.

The building of a real future for.

Having this mindset of course lymphoma, Baidu, we run a very.

Luis Felipe Castellanos: Okay, thank you very much Ernesto. Let me give a crack at the introduction to the answer, and probably Micaela will help us with a little bit more detail. In terms of cost of risk guidance, El Nio, actually, what works well is that we don't expect to have as strong rains and damage to certain infrastructure due to El Nio. However, we are living through it phenomenally. It's been the case for the whole, most of 2023, and we expect it to continue. As you've seen, the temperature is really high; the sea temperature, the ocean temperature, is also high.

So I'll start with equal Giordano.

Betsy.

Hey, good results in terms of operating leverage.

<unk> said that you did touch on from Takeda.

Who I'm sure will.

Give you a little bit more people on each of the subjects.

Thank you very much.

<unk> Hi, Ernesto. Thank you for your questions. Let me let me go in order first with your question related to cost of risk Okay.

As you can see the guidance that we're providing is to be below cost of risk of 2023, and if you see the evolution of cost of risk. During 2023 now it has been going up.

During the third quarter in to a minor extent during the fourth quarter.

Luis Felipe Castellanos: So even though we don't expect, and where I'm not expecting now to have them strongly appear, No, that's something with a macro-competition rule. The linear still impacts many of the industries of Europe, in Peru, like fishing and agriculture, in certain ways. Even though, again, the rainfall will be more moderate or not very important, we do see some disruption there, so we have to be careful when we talk about aluminum. Having said that, we do expect the second half to be better than the first half, and Miquela will probably elaborate on that. Now, then, on NIM, I think she also has some details.

And why is that and we have discussed in the previous conference call specifically, the consumer lending portfolio the unsecured portion.

And specifically related to the fact that with no.

And GDP growth in sustained inflation, there has been a deterioration of the payment ability of Peruvian cabinets. So now in in the second half of 2023. We also included within the forward looking variables of our provisions are moderate Nino.

Time.

Something above 100 million solid.

Luis Felipe Castellanos: And in terms of expenses, the only thing I can tell you, and she can do some of the break-up, that what we know as management is that... What we can control is costs, and we're very focused on that. And that discipline will continue. And it's built on two basic premises.

And for next year, what we're expecting is a first quarter, which is still high even with no Nino and this is because the picking up of older rescheduling that we have been doing during 2023 now is maturing have mature a portion of it in the third quarter fourth quarter, but we will see.

Luis Felipe Castellanos: Austerity in our operations, but the second premise is that we continue investing in building our future. So we won't sacrifice the building of our digital future to have this mindset of cost control. But do we run a very focused austerity culture that, as you can see, is giving good results in terms of operating leverage? Having said that, let me pass on to Michaela, who I'm sure will give you a little bit more detail on each of the subjects that you have raised. Thank you very much.

You'll see some of that during the first quarter of 2024 after that we should expect and what we are expecting a downward trends in the cost of risk.

In to the last question of the cost of response, not really related to when should we see storage levels.

And I think we will not go down to.

To below 3% as was a pre COVID-19 and this is just because of the portfolio composition.

Michaela Casasa: Felipe, hi Ernesto, thank you for your question. Let me go in order first with your question related to the cost of risk. Okay, as you can see, the guidance that we are providing is to be below the cost of risk in 2023. And if you look at the evolution of the cost of risk during 2023, now it has been going up during the third quarter and to a minor extent during the fourth quarter. And why is that?

Yes, we are expecting 2025 to be a level much lower provisions at <unk> 2004 that I wouldn't expect that number to be below pre COVID-19 levels.

Now, let me move to NIM expectations, we are providing a guidance of above five 5% relatively stable NIM.

And this is because there are of course opposing trends, we see NIM. During 2024, there are some positive trends in that for sure.

Michaela Casasa: And we discussed in the previous conference call specifically the consumer lending portfolio, the unsecured portion, and specifically related to the fact that, with no GDP growth and sustained inflation, there has been a deterioration of the payment ability of Peruvian families. So now, in the second half of 2023, we also included, within the forward-looking variables of our provisions, a moderate Nino. And at the time, it was something above 100 million solids.

<unk> is related to cost of funds specifically cost of funds in solids as rates have already started to go down but there are also some negatives related to yield on loans and this is coming specifically from a.

Higher percentage from commercial loans and lower percentage in the mix of consumer loans, given that we have been decreasing the portfolio in the last months of 2023, and we expect that portfolio to continue shrinking for some months in 2024, okay. So putting all of that together.

Michaela Casasa: For next year, what we are expecting is a first quarter that is still high, even with no Nino. This is because the picking up of all the rescheduling that we have been doing during 2023 is maturing, and a portion of it has matured in the third quarter and fourth quarter, but we will still see some of that during the first quarter of 2024. After that, we should expect, and we are expecting a downward trend in the cost of risk. And to the last question on the cost of risk part, not really related to when we should see historical levels, I think we will not go down to below 3% as was pre-COVID. And this is just because of the portfolio composition. Yes, we are expecting 2025 to be a level with much lower provision than 2024, but I wouldn't expect that number to be below the pre-COVID level. Now, let me move to NIM expectations.

It is why we are giving a stable NIM expectation for 2024.

The third part related to expenses.

<unk>.

We are giving a guidance of a stable and.

Efficiency ratio at Iff's, immuno ready or the efficiency ratio at <unk> is particularly low at 37% we are expecting expenses to grow mid single digits both of them.

I have faith in them and at the bank in specific is talking about D. In investments in Opex related to digital and financial disruption what I can tell you there unless there is that in the amount of investments that we do in technology in there.

It's very difficult to split between what is digital is reached with this rationally and what is not because at the end of the day all the digital investments that we're doing are related to that.

The app in all our strategy, which is to become a digital bank.

That amount.

Okay.

Michaela Casasa: We are providing guidance of above 5.5% relatively stable NIM, and this is because there are opposing trends within NIM during 2024. There are some positive trends, and that for sure is related to the cost of funds, specifically the cost of funds in SOLES as rates have already started to go down. But there are also some negatives related to yield on loans, and this is coming specifically from a higher percentage from commercial loans and a lower percentage in the mix of consumer loans given that we have been decreasing the portfolio in the last month of 2023 and we expect that portfolio to continue shrinking for some months in 2024. Okay, so putting all of that together, this is why we are giving a stable NIM expectation for 2024. The third part is related to expenses. We are giving guidance on a stable efficiency ratio at IFS. You know already that the efficiency ratio at IFS is particularly low, at 37%.

I mean has become like five times, what it used to be five to seven years ago. Now. It has remained at that level and will most likely continue to grow in the coming years now where in the P&L can you see the positive.

On the benefits of all these digital strategy that we have been deployed I think that it is in.

All of the lines of the P&L, because if I start to think.

Think of all the things that we have done in digital it has boost for short number of clients, but it has also boost digital sales. So there you can think about more income it has boost not only volume because we have increased the capability to do loans both in.

But more in retail, but also in fees because we have been able to do much more things in a digital way fees, but also trading income.

When we look at the penetration of products within the increased customer base. It has increased in most of the of the segments. So I would say that it is mostly related to a positive operating leverage so more revenues coming from all the things that we're doing in digital for sure. There is also an <unk>.

Michaela Casasa: We are expecting expenses to grow at a mid-single digit rate both at the IFS and at the bank. And specifically talking about the investments and op-eds related to digital and financial disruption, what I can tell you there Ernesto is that the amount of investments that we do in technology, and then it's very difficult to split between what is digital disruption and what is not because, at the end of the day, all the digital investments that we are doing are related to data, the app, and our strategy, which is to become a digital bank. That amount, h, I mean, has become like five times what it used to be five to seven years ago. It has remained at that level and will most likely continue to grow in the coming years.

Packed in marginal cost because all these new clients that we have brought.

To the bank, but also to the Interstate Woodall to Intel Eagle in Merck transact at ECP, we would not have been able to do that without the digital strategy because at the same time, where we have increased five times a day digital investments we have reduced the physical presence.

<unk> more than 40%. So when you put everything together I think you cannot separate nine analyzed only what is the impact of some specific digital initiatives by these the impact of the overall digital strategy that we are deploying at IFA and maybe just.

Michaela Casasa: Now, where in the PNL can you see the positive or the benefits of all these digital strategies that we have been deploying? I think that it is, on all the lines of the P&L. Because if I start to think of all the things that we have done in digital, it has boosted, for sure, the number of clients, but it has also boosted digital sales. So there you can think about more income.

Just to comment a little bit more specifically on the latest investment related to payments.

In some of the things that we are monitoring very strongly and that we are pushing for is synergies within their back now so they're the play is not only the fees. That's already ECP brings but also all the synergies that we are creating in working in making the ecosystem of interbank stronger in <unk>.

Michaela Casasa: It has boosted not only volumes because we have increased the capability to do loans both in retail but more in retail, but also in fees because we have been able to do much more things in a digital way, fees and also trading income. When we look at the penetration of products within the increased customer base, it has increased in most of the segments. So I would say that it is mostly related to positive operating leverage, so more revenues coming from all the things that we are doing in digital. For sure, there is also an impact on marginal costs because of all these new clients that we have brought to the bank, but also to Interseguro, Inteligo, and the merchants at ECP.

<unk> more inflows.

Sure.

Inflows to interbank accounts now.

Couple that with ECP, yet, which is focus on the micro merchants.

Besides flowed in more inflows also the possibility to start adding some new services that will.

To provide additional fees. So let me stop there let method to see whether I was able to answer the four questions.

Oh, yes. Thank you very much Mikael language Felipe just the last question in your ROE.

Michaela Casasa: We would not have been able to do that without a digital strategy, because at the same time as we have increased five times the digital investment, we have reduced the physical presence by more than 40%. So, when you put everything together, I think you cannot separate and analyze only the impact of some specific digital initiatives, but it's the impact of the overall digital strategy that we are deploying at IFS.

You're guiding the ROE above 12% this year.

But when should we think about your medium term Roe.

I think in the past you were saying.

Are you for sustainable ROE is around mid teens.

Uh huh.

Wanted to hear from you how are you seeing the ROE evolution in the next years I understand you will contribute.

Michaela Casasa: And maybe just to comment a little bit more specifically on the latest investment related to payments. There, some of the things that we are monitoring very strictly and that we are pushing for are synergies with Interbank, no? So there is not only the fees that ECPay already brings, but also all the synergies that we are creating in making the ecosystem of Interbank stronger and attracting more inflows and float into Interbank accounts. No? And on top of that, with ECPay, which is focused on micro merchants, besides float and more inflows, also the possibility to start adding some new services that will provide additional fees. So let me stop there, Ernesto, to see whether I am able to answer the four questions. Oh, yes.

In terms of cost of risk, but as you said it could be normalizing to a cost of risk of around 3% in the next years that could be a driver.

Wondering how should we think about the ROE evolution over the next couple of years.

Sure I think.

Excellent. Thanks for your question.

It should start normalizing.

<unk>.

After 2034, so a mattress unit and we deliver.

According to our models developers back well over a year that will be targeting that 18% medium term also hopefully we'll be able to reach that its all related to the outperformance of the economy.

We have done our work in terms of changing the profile of our new customer acquisition in terms of credit cards consumer loans. However.

Ornesto Gabilondo: Thank you very much, Miquela and Luis Felipe. Just a last question on your ROE. You're getting an ROE above 12% this year, but when should we think about your medium-term ROE? I think in the past, you were saying that the IFRS sustainable ROE is around 18. So, just wanted to hear from you.

It has to react.

And how the economy goes in the future and also so.

Our base case is exercising 2035 will be returning to higher profit levels and obviously, we have to pay close attention.

Luis Felipe Castellanos: How are you seeing the ROE evolution in the next years? I understand this year will continue to be high in terms of cost-to-risk, but as you said, it could be normalizing to a cost-to-risk of 3% in the next years. That could be a driver.

Investment results and that will be subject to.

<unk>.

Evolution of international capital markets.

I don't know.

You want to complement themselves.

Nestor.

I mean, the cost of risk is not necessarily going down to 3%. It will it will go down to below 4%, but not necessarily three zero somewhere between 335 I don't know exactly in 2025, I mean, we could get back to the midterm arrow in 2035 actually.

Michaela Casasa: So, just wondering how we should think about the ROE evolution over the next couple of years. I think, Ernesto, thanks for your question. We should start normalizing... after 2034. So I'm not very sure. Maybe Miquela can tell us if, according to our models, 2035 will already be there, but we'll be targeting that 18% median term. So hopefully, we'll be able to reach it, and it's all related to the performance of the economy, and we have done our work in terms of changing the profile of our new customer acquisition in terms of credit cards and consumer notes. However, it has to react according to how the economy goes. So, our base case is that it is starting to. In 2035, they will be returning to higher profitability levels, and obviously, we have to pay close attention to the investment results, and that will be subject to the evolution of the international capital market. I don't know, Miquela, if you want to comment.

The.

Uncertainty there is if the bank goes back to the 17 to 18.

Now and that will depend on the speed of the recovery of the Peruvian economy, which directly impacts the consumer portfolio.

Okay.

Okay excellent.

Thanks very much.

Well again, if you have a question. Please press Star then one our next question will come from Nicolas Riva with Bank of America. Please go ahead.

Thank you very much Mitchell Henri Philippe for taking my question. So how about question on your tier two once.

The one issued at the interbank level at the bank level. So.

<unk> already announced.

You guys are going to be calling the outs.

Funding of the 2000 2019, two in March just over $100 million.

But you also have an out of tier two bonds that you can call next year.

Michaela Casasa: Ernesto, I mean, the cost of risk is not necessarily going down to 3%. It will go down to below 4%, but not necessarily 3.0. It's somewhere between 3 and 3.5, I don't know exactly.

These are quite different from the 29th of lower coupon and lower reset. So if you can discuss what we should expect regarding the call option on the 2030 pure tools.

Next year and then also.

Michaela Casasa: In 2025, I mean, we could get back to the midterm ROE in 2025. Actually, the uncertainty varies if the bank goes back to the 17 to 18 ROE. And that would depend on the speed of the recovery of the Peruvian economy, which directly impacts the consumer. Thank you very much.

Earlier this year to finance the Colombia, 29th you issued at a non call five theater.

Approve on that.

Also like a legacy tier two one in the sense that there is no coupon deferral under snow.

CET one trigger for British about right on my question is why does the banquet whenever you pay to allow banks to issue to Felicia This legacy.

Operator: You're welcome. Again, if you have a question, please press star, then 1. Our next question will come from Nicholas Riva with Bank of America. Please go ahead.

Tier two bond further Basel III tier twos.

Thanks.

Thanks Nicolas.

Nicholas Riva: Thanks very much, Miquel and Luis Felipe, for taking my question. So I have a question on your Tier 2 bonds, the ones issued at the interbank level, at the bank level. So the bank has already announced that you guys are going to be calling the outstanding of the 2029 Tier 2s in March, just over $100 million. But you also have another Tier 2 bond that you can call next year. The economics are quite different from the 29s, a lower coupon, and a lower reset.

Perfect question to be answered by.

Used together.

Hi, Nicholas and thank you for your question.

Listen first related to the tier two that will mature or whether we call level during next year.

It's something that we are expecting to renew for sure.

We do need the additional $300 million sub debt for Alex.

Total capital ratio and that's why the superintendency allows banks to issue all style bonds.

Nicholas Riva: So, if you can discuss what we should expect regarding the call option on the 2030 Tier 2s next year. And then also, earlier this year, to finance the call on the 29s, you issued a Tenon Call 5 Tier 2 bond. And that's also like a legacy Tier 2 bond in the sense that there's no coupon deferral, and there's no CT1 trigger for principal write-down. My question is, why does the bank regulator in Peru allow banks to issue these legacy Tier 2 bonds rather than Basel III Tier 2 bonds?

That I wouldn't know the exact why but what I can tell you is that you.

You know they do has been for a long period of time in stage that we always described a basal too high.

Hi.

The latest regulation that was issue during last year brought us to Basil $2 95 to two savings in some way in the only feature that has not been implemented is the one that you're asking so everything else has been aligned to Basel III.

In that the the tier two bonds have remained with those characteristics now so basically the one that we issued in January is an old style, which at the end.

Michaela Casasa: Thank you. Thanks, Nicolás. That's a perfect question to be answered by Miquela. Go ahead, please, Miquela.

Michaela Casasa: Hi, Nicolás. Thank you for your question. Listen, first, related to Tier 2 that will mature or will be callable during next year, it's something that we are expecting to renew for sure. We do need the additional $300 million of debt for our total capital ratio. And why does the superintendency allow banks to issue all-style bonds? That I wouldn't know the exact why, but what I can tell you is that, you know, Peru has been for a long period of time in a stage that we always describe as Basel 2.5.

It's pretty.

Yeah.

Liked by by the by the investors in and we are not sure really whether or not there is going to be additional regulation going forward, but if not most likely the new that we will issue next year will also be in this way.

Yes, there are news in the regulation.

Okay understood and then one follow on apparel comment when you said, we need the $300 million of tier two capital from the 2000 Thirty's exploratory you mean in that sense, you mean that you expect.

To call that bond and replacing with a new.

Legacy tier two issue on us.

Nicholas Riva: The latest regulation that was issued last year brought us to Basel 2.95, to put it in some way, and the only feature that has not been implemented is the one that you're asking. So everything else has been aligned to Basel 3, but the Tier 2 bonds have remained with those characteristics. So basically, the one that we issued in January is an old style, which at the end is pretty..., like by the investors, and we are not sure really whether or not there is going to be additional regulation going forward, but if not, most likely, the new one that we will issue next year will also be in this way, unless there are changes in the regulation. Okay, understood.

I mean, we will need to evaluate of course, when the economics, now, but and which we will need to be in closer to the call.

The call date of the book.

Okay and just one last question on that if you were not to call that bond does it start losing capital treatment.

Yes, yes, yes, it does 20% per year.

Okay. Thank you very much me correct.

Thank you.

The next question will come from Carlos Gomez with HSBC. Please go ahead.

Good luck.

Thank you very much for taking my call.

Thank you Mikael.

Am I right.

And I made you may already have answered this but can you collect your peers about the level of indebtedness of the SME and.

Michaela Casasa: Miquel, I want to follow up on the prior comment. When you said we need the $300 million tier 2 capital in the 2030s, you mean, in that sense, you mean that you expect..., to call that bond and replace it with a new legacy tier 2 issuance. I mean, we will need to evaluate, of course, all the economics, no, but which we will need closer to the call date of the vote. Okay, and just one last question on that. If you were not to cut that bond, does it start losing capital treatment? Yes, yes, yes, it does.

And the consumers in Peru.

And what is a realistic outlook for credit growth not only for this year, but for the coming two or three years.

And second during the Kobe Anthony to try to make a push for a submission to <unk>.

Program.

Whether you come there and do you have an ambition to go into that segment. Thank you.

Yeah.

Okay.

Nicholas Riva: 20% per year. Okay, thank you very much, Miguel. Thank you. The next question will come from Carlos Gomez with HSBC, please go ahead. Thank you very much for taking my call. Thank you, Miguel.

Okay, Yes. Thank you for your question.

The level of that machine.

Let me take a proxy.

The last one in your restaurant in two fronts. The first one.

Yes.

Lots of room in terms of increasing bank demonstration in Peru.

On the debt side.

Okay. So so I think were still 40%.

Carlos Gomez: I joined late, and you may already have answered this, but can you tell us your views about the level of indebtedness of the SMEs and the consumers in Peru? And what is the realistic outlook for credit growth, not only for this year but for the coming two or three years? And second, during the COVID pandemic, you tried to make a push for SMEs through the REACTIVA program. Where are you on that, and do you have more ambitions to go into that segment? Thank you. Okay, yeah, thank you, Carlos, for your question. The level of geignac. Let me take a crack at answering your question in two parts.

Hello also on the GDP and consumer losses.

Well below that so the growth potential for our Permian system release.

As strong as it has.

He has been in the last years, obviously, we're undergoing.

Negative credit cycle, right now given economic conditions and the overall environment, but we know that that will pass and Franco will return moving forward.

Is that a couple is coupled with a recovery of economy than we.

We'll we'll be even stronger.

<unk>.

And the same happens for acne.

The pension at the BDC.

Luis Felipe Castellanos: The first one, there's still lots of room in terms of increasing bankarization in Peru on the debt ceiling. Okay, so I think we're still starting at 40% total loans over GDP, and consumer loans will be below that. So the growth potential for the Korean system remains, and the other two are the leaders of the group. We are not in a position to say that the economy is as strong as it has been in recent years. Obviously, we are undergoing a negative credit cycle right now given economic conditions and the overall environment, but we know that will pass, and probably growth will return moving forward. And the same will happen for SMEs. I think one of the things in SMEs is the... Informality in Peru is an issue in order to be more aggressive, and so we are working on building these capabilities and analytical capabilities to get to them. The push that we did during the pandemic, working with Reactiva, was very positive for us. It allowed us to learn very much about our clients in a segment that we are not really big in. However, given the current macro environment, we are not everything in terms of taking additional risk.

Informality in Peru.

At issue in order to be more aggressive.

So we are working on a purely digital capabilities and analytical capabilities to get to that.

The the portion we did during.

The pandemic working with Westbury.

Very positive for us and allow us to learn very much of all of our clients.

In a segment that we are not really however, given the current macro environment, we are not Eric Genco.

In terms of taking additional risk we are very aggressive if you walk in our regional portfolio, we don't need to be moved up in our commercial portfolio back into access in Israel. So we do.

So 3% market share we are building these capabilities.

This tool to serve that market.

And we've learned a lot.

<unk>.

We see what's working with them however, until the cycle, that's not turnaround before remain in hours and hours.

Conservative approach towards.

Yes.

The ECP acquisition.

Luis Felipe Castellanos: We are very aggressive, if you want, in our retail portfolio. We don't need to do that in our commercial portfolio. That creates an issue.

With a very close merchants that creates an avenue of growth for our customer segment that our company is also very well.

We are always using years also so we have good assets, it's Gerry I'll take a crack at that segment without.

Luis Felipe Castellanos: So we do have a solid 3% market share. We are building digital capabilities and analytical capabilities to serve that market. We've learned a lot, and we see what's working with them.

The disproportionate increase in risk limits.

Yeah.

Okay.

For my side and I'll get into one of the components.

The only thing I would add is that.

Luis Felipe Castellanos: However, until that cycle does not turn around, we'll probably remain in our conservative approach towards SMEs. The easy-pay acquisition has put us very close to merchants, and that creates an avenue of growth for our customer segment that our company knows very well. And as Miquela mentioned, we are already seeing seniority. So we have good assets in terms of take-across at that segment without disproportionately increasing the risk level. I think that's it for my side. I don't know, Michael, if you want to complement something.

From all the new clients that we started working with you in the reactive or loans in.

In the small business segment, Okay, we were not able to lend to many of them I think is somewhere below 15% the percentage of loans that we were able to renew without the guarantee of Rab fever, but what what was really positive news from that was that the.

A number of clients increased substantially in that segment and also the float would that segments of deposits and together with those deposit fees coming from transfers and also trading income. So there was a side business coming from that segment.

Michaela Casasa: The only thing I would add is that, in the small business segment, we were not able to lend to many of them. I think it's somewhere below 15% the percentage of loans that we were able to renew without the guarantee of Reactiva. But what was really positive news from that was that the number of clients increased substantially in that segment and also the float with that segment, so deposits and, together with those deposits, fees coming from transfers and also trading income.

We direct D var program.

When we move upwards to the midsized company there the impact was even higher we were able to.

Replace active of loans, there I think it was around 40% or something like that and also the collateral business trading income and fees West was very important.

Michaela Casasa: So there was a side business coming from that segment with the reactiva program. And when we moved upwards to the mid-sized company, there the impact was even higher. We were able to replace reactiva loans there. I think it was around 40% or something like that.

And I think that that together with some other things that we have been doing in the mid corporate segment has allowed us to reach the number three position in the market as of year end normally we used to be number four now we are number three in the market.

Okay.

Thank God, you're saying your market share is good.

Michaela Casasa: And also, collateral business trading income and fees were very important. And I think that, together with some other things that we have been doing in the mid-corporate segment, has allowed us to reach the number three position in the market as of year end. We used to be number four; now we are number three in the market. Thank you. And you said your market share is, did I understand, 3% or 13%? No, in small business, it's only 3%, in the small b, but that's a small b, that's not a semi, right? It's a portion of both, mid-corporate plus small business, yes.

3% or 13%.

Now in the small business is only 3%.

In this model, but that's it's one of these is that there is not the time is right.

Yeah.

Motion of both the mid corporates plus small business yes.

Okay.

And I think my other question was in terms of.

In actual numbers, but yes, there is a lot of potential for growth.

How much will you expect.

The portfolio totaled again, not only to defer production.

Okay.

Okay.

That particular specific segments, sorry, our overall.

Both.

Okay now what was the guidance we are giving for total loan growth for next year is mid single digit. Okay. Actually we are expecting a little bit higher increase in loans in commercial banking in a little bit lower and in retail banking because a steal in the consumer portfolio.

Carlos Gomez: OK. And my other question was in terms of, you know, in actual numbers, well, yes, there is a lot of potential for growth. How much do you expect your portfolio to grow? Again, not only 24, but also 25, 26, in that specific segment, sorry, or overall?

I mean, we will grow marginally we believe.

Thank you so much.

Yes.

At this at this time, we will take the webcast questions I would now like to turn the call over to the inspire group. Please go ahead.

Carlos Gomez: Both. Okay, no, what I mean is the guidance that we are giving for total loan growth for next year is mid single digit. Okay, actually, we are expecting a little bit higher increase in loans in commercial banking and a little bit lower in retail banking because, still, the consumer portfolio will grow marginally, we believe. Thank you so much.

Thank you operator, the first question comes from Daniel Moore.

Edit Corp, and.

In 2024, and we expect a stable NIM given that with increases in rates. It remains stable at $5 five.

Let me, let me take that Danielle. Thank you for your question I guess, we commented that before yes, we are providing guidance for a stable NIM.

Operator: At this time, we'll take the webcast questions. I would now like to turn the call over to the Inspire group. Please go ahead.

Which is the result of decrease in cost of funds from the cuts in solid rates, but also some pressure in the yield on loans due to the portfolio mix in its evolution.

Operator: Thank you, Operator. The first question comes from Tania Mora of Credit Corp. In 2024, can we expect a stable MIM given that with the increases in rates, it remains stable at 5.5? Let me take that, Daniel. Thank you for your question. I guess we commented on that before.

Thank you and as a follow up to that when do you expect to reach a peak in provisions and the peak in nonperforming loans.

Taking provisions I mean, we believe that the high quarters and it has been already the third and fourth quarter, but the first quarter of 2024 is still going to be a high cost of risk for the consumer portfolio. After that we expect a cost.

Michaela Casasa: Yes, we are providing guidance for a stable NIM, which is the result of a decreasing cost of funds from the cuts in solace rates, but also some pressure on the yield on loans due to the portfolio mix in its evolution. Thank you, and as a follow-up to that, when do you expect to reach the peak in provisions and the peak in non-performing loans? Speaking provisions, I mean, we believe that the high quarters have already been the third and fourth quarter, but the first quarter of 2024 is still going to be a high cost of risk for the consumer portfolio. After that, we expect the cost of risk to start to go down and eventually normalize in the coming quarter. The next question comes from Nancy Lopez of UP. What was the main trigger of a change on retail loans to more expensive maintenance? Can you read it again, sorry? Can you read it again? What was the main trigger on retail loans to more expensive maintenance ones?

The phase two to start to go down in eventually normalize in the in the coming quarters.

Yeah.

The next question comes from Nancy Lopez.

<unk>.

What was the main trigger of a change in retail loans are more expensive maintenance plans.

Yeah.

Can you read it again sorry.

Okay.

What was the main trigger.

On retail loans to more extensive maintenance lines.

Two more expensive maintenance once is that the question.

Yes.

I mean, maybe if I can comment on the portfolio mix what has been happening in there.

Michaela Casasa: to more expensive maintenance ones, is that the question? Yes. I mean, maybe if I could comment on the portfolio mix, what has been happening in the past two quarters is that consumer loans, the unsecured portion, have been decreasing because of the risk profile. That is the main reason why. While we have seen continuous growth in mortgages, in payroll deductible loans to public sector employees, and also in commercial banks.

As two quarters is that consumer loans. The unsecured portion has been decreasing because of the risk profile that is the main reason why.

While we have seen him a continuous growth in mortgages in payroll deductible loans to the public sector employees and also in a commercial banking.

Yeah.

Yeah.

The next question comes from Danielle May data.

Michaela Casasa: The next question comes from Daniel Merida of PUCP. Good morning. Thanks for the presentation. Can you please give an update on your buyback program? Sure, but the buyback program was put on hold a few months ago. Actually, after the latest update that we gave during, I think it was three quarters ago, we have not pursued any additional purchases. And we are in kind of a wait-and-see position, given that we are now focusing more on maintaining the capital levels, given the macro outlook that has not changed dramatically during the last half of 2020. The next question comes from... and Mr. Armando of Bank of America. What should we think about the dividend payout ratio this year?

Good morning, Thanks for the presentation can you. Please give an update about your buyback program.

Sure.

The buyback program.

Let's put in a horn a few months ago actually after the latest update.

Updating that we gave during I think it was three quarters ago, we have not pursue any additional.

Purchases.

It is in kind of a wait and see position given that we are now focusing more on maintaining the capital levels given the macro outlook that change not dramatically during the last half of 2023.

Okay.

Okay.

Our next president.

Yes.

Wanda.

Bank of America.

How should we think about the dividend payout ratio this year.

Operator: Hi Ernesto, I think you can hear me now. I'm sorry, I had some problem with my microphone. Well, it's basically our policy. You have to take into account 45% of the bank, think about 50% of the insurance company, and a bit of the interior, whose results are not very high. Then we take some cash into the holding company in order to cover expenses and debt service.

Higher vessel.

Thank you guys Jerry answer that also with.

My microphone.

Well basically our our our policy you have to take it around 45% of the bank.

Hey, guys.

80% of insurance company and a bit of a.

Of the <unk>, which results are not very high and we take some cash into each of the operating company.

The holding company in order to cover expenses.

And debt service.

Luis Felipe Castellanos: So it should be, I think we're announcing it pretty soon, so you can work through the numbers. I don't know if we can say the number right now. We still have to go through the process of the IFS boards and shareholders meetings in order to approve it. But that's the way we build up our dividends.

So it should be.

Warehousing is pretty soon so so you can work through the numbers.

We can say on this.

We still have to go through the process of IHS, Florida shareholders' meeting virtually all of it.

But that's not the way we built our hour.

Dividends.

Operator: And it's based, remember, on local capital. So we can work through the numbers, but it's too early to actually mention it. But it probably will happen.

Based on the number of local Guy so I'll walk through the numbers.

Where energy Leslie mentioned it by this probably will happen again.

Yes.

Yeah.

Operator: At this time, there are no further questions. I'd like to turn the call over to the operator. Thank you. There appear to be no further questions at this time on the audio side as well. I would like to turn the floor back over to Ms. Casasa for any closing remarks. Please go ahead.

At this time there are no further questions I'd like to turn the call over to the operator.

Thank you there appear to be no further questions at this time as well on the audio side I would like to turn the floor back over to MS. Casassa for any closing remarks. Please go ahead.

Okay. Thank you very much. Thank you everybody again for attending our call and for the questions and we'll see each other again for our first quarter results. Thanks again goodbye.

Michaela Casasa: Okay, thank you very much. Thank you everybody again for attending our call and for the questions, and we'll see each other again for our first quarter results. Thanks again. Bye. Bye. This concludes today's conference call. You may now disconnect. Fernandes, Carlos Gomez, Natalia Nirenberg, Intercorp Fin Sr. Fernandes, Carlos Gomez, Natalia Nirenberg, Intercorp Fin Sr.

Uh huh.

This concludes today's conference call you may now disconnect.

Okay.

Thank you.

Okay.

Okay.

Okay.

Okay.

Thank you.

Okay.

Sure.

Okay.

Okay.

Okay.

Possibly.

Okay.

Yeah.

Okay.

Yes.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

[music].

Okay.

Okay.

Yes.

Perfect.

Okay.

Okay.

Yes.

Okay.

Okay.

For the quarter.

Okay.

Sure.

[music].