Q2 2024 Credicorp Ltd Earnings Call
Speaker Change: Good morning, everyone. I would like to welcome all of you to the Credicorp Ltd. second quarter 2024 conference call.
Operator: 2024 Conference Calls A slide presentation will accompany today's webcast, which is available in the Investors section of Credicorp's website. Today's conference call is being recorded. As 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 today's presentation. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you have connected to the call using the HD web phone on your computer, please use the keypad on your computer screen.
Speaker Change: A slide presentation will accompany today's webcast, which is available in the Investors section of Credicorp's website.
Speaker Change: Today's conference call is being recorded.
Speaker Change: As 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 today's presentation.
Speaker Change: If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you have connected to the call using the HD web phone on your computer, please use the keypad on your computer screen.
Operator: If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Now, it is my pleasure to turn the conference over to Credicorp's IRO, Milagros Cigüenes. You may begin.
Speaker Change: If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Now, it is my pleasure to turn the conference over to Credicorp's IRO, Milagros Cigüenes. You may begin.
Milagros Cigüenes: Thank you and good morning everyone. Speaking on today's call will be Gianfranco Ferrari, our Chief Executive Officer, and Alejandro Perez Reyes, our Chief Financial Officer. Participating in the Q&A session will also be Francesca Raffo, Chief Innovation Officer; Cesar Rios, Chief Risk Officer; Diego Cabrero, Head of Universal Banking; Cesar Rivera, Head of Insurance and Pensions; and Carlos Otelo, Mi Banco's Chief Financial Officer.
Milagros Cigüenes: Thank you and good morning everyone. Speaking on today's call will be Gianfranco Ferrari, our Chief Executive Officer, and Alejandro Perez Reyes, our Chief Financial Officer.
Speaker Change: Participating in the Q&A session will also be Francesca Raffo, Chief Innovation Officer.
Speaker Change: Cesar Rios, Chief Risk Officer, Diego Cabrero, Head of Universal Banking, Cesar Rivera, Head of Insurance and Pensions, and Carlos Otelo, Mi Banco's Chief Financial Officer.
Milagros Cigüenes: Before we proceed, I would like to make the following safe harbor statement. Today's call will contain forward-looking statements that are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties. And I refer you to the forward-looking statement section of our earnest release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances.
Speaker Change: Before we proceed, I would like to make the following Safe Harbor Statement.
Speaker Change: Today's call will contain forward-looking statements which are based on management, current expectations and beliefs, and are subject to a number of risks and uncertainties.
Speaker Change: And I refer you to the forward-looking statement section of our earnest release and recent filings with the SEC.
Speaker Change: We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances.
Milagros Cigüenes: Gianfranco Ferrari will start the call with opening remarks about our improved macro environment and brief comments on our digital strategy execution, followed by Alejandro Pérez Reyes, who will present in more detail the evolution of key macro figures, our financial performance, and revised outlook for 2025. Mr. Ferrari, please go ahead. Thank you, Milagros.
Gianfranco Ferrari: Gianfranco Ferrari will start the call with opening remarks about our improved macro environment and brief comments on our digital strategy execution, followed by Alejandro Perez Reyes who will present in more detail the evolution of key macro figures, our financial performance and revised outlook for 2024.
Gianfranco Ferrari: Thank you, Milagros. Good morning, everyone.
Gianfranco Ferrari: During the quarter, we made significant progress in executing our strategic initiatives across most of our operations, resulting in a sound first half of the year.
Gianfranco Ferrari: Thank you for joining us today. During the quarter, we made significant progress in executing our strategic initiatives across most of our operations, resulting in a sound first half of the year. Our financial results were robust, ending the quarter with resumed loan growth, a resilient risk-adjusted NIM, and a solid balance sheet. Importantly, as the economy improves, we are well positioned to continue to leverage additional opportunities and advance on our mission to efficiently provide products and services that meet our clients' needs while promoting financial inclusion.
Speaker Change: Our financial results were robust, ending the quarter with resumed long growth, a resilient risk-adjusted NIM and a solid balance sheet.
Speaker Change: Importantly, as the economy improves, we are well positioned to continue to leverage additional opportunities and advance on our mission to efficiently provide products and services that meet our clients' needs while promoting financial inclusion.
Gianfranco Ferrari: Before I turn to discussing several specific areas of our focus at Credicorp, I'd like to comment on the context in which we are operating, particularly in Peru. GDP growth projections from local economies have been revised upwards and now align with our expectations of GDP growth of 3% for 2024. Improved weather conditions have broadly benefited the economy, especially the fishing, agriculture, and textile industry.
Speaker Change: Before I turn to discussing several specific areas of our focus at Credicorp, I'd like to comment on the context in which we are operating, particularly in Peru.
Speaker Change: GDP growth projections from local economies have been revised upwards and now align with our expectations of GDP growth of 3% for 2024.
Speaker Change: Improved weather conditions have broadly benefited the economy, especially the fishing, agriculture and textile industries.
Gianfranco Ferrari: Despite the ongoing government fragility, inflation remains among the lowest in the Latin American region, with improved purchasing power paving the way for the central bank to further reduce its benchmark interest rate. With this in mind, our team is expecting the consumer segment to improve in this second half of the year. These factors, combined with increased public investment and high copper and gold prices, underscore expectations for economic growth, highlighting Peru's resilience. Turning now to our second quarter report.
Speaker Change: Despite the ongoing government fragility, inflation remains among the lowest in the Latin American region.
Speaker Change: With improved purchasing power paving the way for the Central Bank to further reduce its benchmark interest rate.
Speaker Change: With this, our team is expecting the consumer segment to improve in this second half of the year.
Speaker Change: These factors, combined with increased public investment and high copper and gold prices, underscore expectations for economic growth, highlighting Peru's resilience.
Gianfranco Ferrari: We deliver a sound ROE of 16.2%, driven mainly by universal banking, insurance, and investment management and advice, although supported by improved loan growth and high transactional activity in a recovering economy. Risk-adjusted needs remain resilient, reflecting strengthened balance sheet dynamics, a disciplined interest rate management strategy, and our leading low-cost funding position, which together compensate for our controlled, although still high, level of progress. Additionally, having declared our dividend last quarter, we maintain a strong solvency and balance sheet position, both of which are crucial to navigating the current credit cycle headwinds.
Speaker Change: Turning now to our second quarter report.
Speaker Change: We deliver a sound ROE of 16.2%, driven mainly by universal banking, insurance and investment management and advisory.
Speaker Change: Supported by improved loan growth and high transactional activity in a recovering economy.
Speaker Change: Risk-adjusted needs remain resilient, reflecting strengthened balance sheet dynamics, a disciplined interest rate management strategy, and our leading low-cost funding position.
Speaker Change: which together compensate for our controlled, although still high, level of provisions.
Speaker Change: Additionally, having declared our dividend last quarter, we maintain a strong solvency and balance sheet position, both of which are crucial to navigating the current credit cycle headwinds.
Gianfranco Ferrari: We continue to see significant benefits from investing in innovation and enhancing our digital capabilities, which are fortified in our competitive modes, enhancing our relationships with current clients, and expanding financial inclusion. Looking ahead, we maintain our GDP growth expectation of 3% for this year and expect a similar outlook for 2021.
Speaker Change: We continue to see significant benefits from investing in innovation and enhancing our digital capabilities, which are fortified in our competitive modes, elevating our relationships with current clients and expanding financial inclusion.
Speaker Change: Looking ahead, we maintain our GDP growth expectation of 3% for this year and expect a similar outlook for 2025.
Gianfranco Ferrari: I'd like to take a few moments to address the performance of Mi Banco Peru. We believe we have the right hybrid business model strategy, which combines high-touch in-person visits from relationship managers with digital tools, including centralized risk assessment and expert team input. However, we are currently working on an extraordinary circumstance.
Speaker Change: I would like to take a few moments to address the performance of Mi Banco Peru. We believe we have the right hybrid business model strategy, which combines high-touch in-person visits from relationship managers with digital tools, including centralized risk assessment and an expert team in place.
Speaker Change: However, we are currently working on extraordinary circumstances.
Gianfranco Ferrari: Systemic issues are affecting the Peruvian microfinance industry, characterized by a highly complex credit cycle where delinquencies and costs of risk are at the highest level since 2008. Although we are seeing signs of a rebound in consumer behavior, the most vulnerable segments served by microfinance will be the last to recover. In this context, while Nibanco is performing better than its peers, IOE fell short of our expectations, and we still do not feel comfortable with respect to the risk assessment of our portfolio.
Speaker Change: Systemic issues are affecting the Peruvian microfinance industry, characterized by a high complex credit cycle, where delinquencies and costs of risk are at the highest level since 2008.
Speaker Change: Although we are seeing signs of a rebound in consumer behavior, the most vulnerable segments served by microfinance will be the last to recover.
Speaker Change: In this context, while MiBank was performing better than its peers, IOE fell short of our expectations and we still do not feel comfortable with respect to the risk assessment of our portfolio.
Gianfranco Ferrari: We are currently conducting a thorough review of our risk capabilities while keeping a strong focus on efficiency and expect to have a much better assessment in the upcoming days. Since launching our microfinance business in 2009, we have navigated various market cycles, generating good returns for the period. I am confident that our profitability will recover, although more gradually than anticipated. We remain the industry leader in supporting the significant and essential population segment that Miranco serves. In Mi Banco Colombia, we implemented a strategy last year to put our business back on course, which included management changes.
Speaker Change: We are currently conducting a thorough review of our risk capabilities while keeping a strong focus on efficiency and expect to have a much better assessment in the upcoming quarter.
Speaker Change: Since launching our microfinance business in 2009, we have navigated various market cycles, generating good returns for the period. I am confident that our profitability will recover, although gradually than anticipated.
Speaker Change: We remain the industry leader in supporting the significant and essential population segment that Miranco serves in Peru.
Speaker Change: In Mi Banco Colombia, we implemented a strategy last year to put our business back on course, which included management changes.
Gianfranco Ferrari: While there is still much work to be done, this business is now performing better in relative terms and is in line with our standards. To sum up, we remain fully committed to the long-term potential of Mibanko and believe that it offers a valuable contribution to Credicorp's portfolio of businesses. Turning to the next slide.
Speaker Change: While there is still much work to be done, this business is now performing better in relative terms and is in line with our expectations.
Speaker Change: To sum up, we remain fully committed to the long-term potential of MiBanco and believe that it offers a valuable contribution to Credicorp's portfolio of businesses.
Gianfranco Ferrari: We are proud to have a premier disruptive financial franchise in Latin America, underpinned by a well-defined strategy and clear goals. Our strategy is geared towards delivering the best experience in the most efficient way to remain competitive while investing in long-term sustainable growth. Since 2022, we have ramped up our investments in innovative and disruptive initiatives to improve our digital and analytical capabilities, positioning us to become an omni-channel financial services company with a deep understanding of our customer needs. We are now seeing tangible results in both our core businesses like BCP and our disruptive ones like YAPI. These initiatives are delivering more digital cost savings.
Speaker Change: Turning to the next slide.
Speaker Change: We are proud to have a premier disruptive financial franchise in Latin America, underpinned by a well-defined strategy and clear goals.
Speaker Change: Our strategy is geared towards delivering the best experience in the most efficient way to remain competitive while investing in long-term sustainable growth.
Speaker Change: Since 2022, we have ramped up our investment in innovative and disruptive initiatives.
Speaker Change: To improve our digital and analytical capabilities, positioning us to become an omnichannel financial services company with a deep understanding of our customer needs.
Speaker Change: We are now seeing tangible results in both our core businesses like BCP and our disruptive ones like YAPI.
Gianfranco Ferrari: Digital clients and digital monetary transactions have increased 9% and 13% respectively year over year, with digital clients growing more than 21% points in the last two years. We have greater customer engagement, increased primary banking relationships, and expanded deposits, which provide us access to highly competitive funds. GCP's enhanced customer insights, increased client touchpoints, and strengthened digital analytical capabilities are delivering positive results. We can now offer our customers tailor-made products leading to increased engagement and higher satisfaction, as reflected in the 11% ballpoint improvement in our consumer client NPS over the last two years. Our development of the digital distribution ecosystem has boosted income while reducing unit costs. As a result of these initiatives, BCP's efficiency ratio has fallen 190 basis points in the last five years.
Speaker Change: These initiatives are delivering more digital customers.
Speaker Change: Digital clients and digital monetary transactions have increased 9.0% and 3.0% respectively year over year, with digital clients growing more than 21.0% in the last two years.
Speaker Change: We have greater customer engagement, increased primary banking relationships and expanded deposits which provide us access to highly competitive funding.
Speaker Change: At GCP, enhanced customer insights, increased client touchpoints, and strengthened digital analytical capabilities are delivering positive results.
Speaker Change: We can now offer our customers tailor-made products, leading to increased engagement and higher satisfaction, as reflected in the 11 percentile points improvement in our consumer clients' NPS in the last two years.
Speaker Change: Our development of digital distribution ecosystems has boosted income while reducing unit costs.
Speaker Change: As a result of these initiatives, BCP's efficiency ratio has fallen 190 basis points in the last five years.
Gianfranco Ferrari: Leveraging our digital capabilities, we are meeting banking needs anytime, anywhere and creating a positive network effect, driving sustainable growth. Our aim is to develop world-class solutions and features that bring them back into the financial system and attract and retain customers. Additionally, we are committed to continuing our investment in technology and digital transformation, provided it continues to drive growth, develop efficiencies, and optimize our businesses in the long term. This strategic approach to investing ensures that we not only live today but also secure our success for tomorrow. Finally, I'd like to give you a brief update on Yap.
Speaker Change: Leveraging our digital capabilities, we are meeting banking needs anytime, anywhere and creating a positive network effect, driving sustainable growth.
Speaker Change: Our aim is to develop world-class solutions and features that bring them back into the financial system and attract and retain customers.
Speaker Change: Additionally, we are committed to continuing our investment in technology and digital transformation, providing it continues to drive growth, develop efficiencies, and optimizes our businesses in the long run.
Speaker Change: This strategic approach to investing ensures that we not only live today, but also secure our success for tomorrow.
Alejandro: Finally, I'd like to give you a brief update on IAPE. Alejandro will go into more detail shortly and we'll take a deeper dive during our Credicorp Strategic Update event on September 26.
Gianfranco Ferrari: Alejandro will go into more detail shortly and will take a deeper dive during our Credicorp Strategic Update event on September 23. With over 15.9 million customers and income per active user of 4.1 soles, up from 3.7 soles in Q1, I am proud to announce that in Q2, YAPE reached and surpassed break-even, ahead of our expectations. Income growth accelerated and diversified with the continued addition of functionality. In all three lives of thee. In all three lives of thee,
Operator: The second quarter, 2024 conference call. A slide presentation will accompany today's webcast, which is available in the investor section of Credicorp's website. Today's conference call is being recorded. As 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 today's presentation. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad.
Alejandro: With over 15.9 million customers and income per active user of 4.1 soles up from 3.7 soles in Q1, I am proud to announce that in Q2, IAPE reached and surpassed break-even, at ahead of our expectations.
Alejandro: Income growth accelerated and diversified with the continued addition of functionality in all three lines of business.
Operator: If you have connected to the call using the HD web phone on your computer, please use the keypad on your computer screen. If you are using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment.
Gianfranco Ferrari: Our investment in IAPE is clearly paying off. According to Cantar Studio, IAPE is now the top of mind brand in Peru across any industry. Now, let me welcome Alejandro to his first results call as our CFO. He will discuss in more detail the macro environment and the operational and financial performance of our business.
Alejandro: Our investment in IAPE is clearly paying off.
Alejandro: According to Cantar Studio, IAPE is now the top-of-mind brand in Peru across any industry.
Milagros Cigeas: Now, it is my pleasure to turn the conference over to Credicorp's IRO Milagros Cigeas. You may begin. Thank you and good morning, everyone.
Alejandro: Now, let me welcome Alejandro to his first results call as our CFO . He will discuss in more detail the macroenvironment and the operational and financial performance of our business units. Alejandro, go ahead. Thank you.
Alejandro Pérez Reyes: Thank you, Gianfranco, and good morning, everyone. I am pleased to join you on my first call as CFO. I look forward to building on the solid foundation that has been set and is reflected today in our strong solvency, sound balance sheet, and stable profitability. Moving on to quarterly results, as Gianfranco mentioned, we delivered solid overall operating and financial results. As I discuss the highlights of the quarter, I will focus on the year-over-year results, which are not impacted by seasonality.
Milagros Cigeas: Speaking on today's call will be John Franco Ferrari, our Chief Executive Officer, and Alejandro Perez-Reyes, our Chief Financial Officer. Participating in the Q&A session will also be Francesca Rafa, Chief Innovation Officer, Cesar Rio, Chief Risk Officer, Diego Cabero, Head of Universal Banking, Cesar Rivera, Head of Insurance and Pensions, and Carlos Otello, Mi Banco's Chief Financial Officer.
Alejandro: Thank you, Gianfranco, and good morning, everyone.
Alejandro: I am pleased to join you on my first call as CFO . I look forward to building on the solid foundation that has been set and is reflected today in our strong solvency, sound balance sheet and stable profitability.
Speaker Change: Moving on to quarterly results, as Gianfranco mentioned, we delivered solid overall operating and financial results.
Speaker Change: As I discuss the highlights of the quarter, I will focus on the year-over-year results, which are not impacted by seasonality.
Milagros Cigeas: Before we proceed, I would like to make the following state Harvard statement. Today's call will contain forward-looking statements which are based on management, current expectations, and beliefs, and are subject to a number of risk and uncertainties. And I refer you to the forward-looking statement section of our earnings release and recent filings with the FTP. We assume no obligation to update or revise any forward-looking statements to reset new or changed events or circumstances.
Alejandro Pérez Reyes: Loans began trending upward to stand at 2.9% measured in quarter-end balance. However, measured in our daily balances, loan growth stood at 0.2%. Driven primarily by an uptick in mortgage volumes at BCP and BCP volumes, this quarter, low-cost deposits continue to grow and now represent 54.5% of total deposits. Despite the reduction in Peru's policy rate, we delivered higher NIM on the back of amortization of government program loans, repricing of our retail loan book in soles to reflect the higher cost of risk, and repricing of our dollar book, up to 8.2% boosted by the aforementioned dynamics.
Speaker Change: Loans began trending upward to stand at 2.9% measured in quarter-end balances.
Speaker Change: Measured in our daily balances, loan growth stood at 0.2%, driven primarily by an uptick in mortgage volumes at BCP and BCP Bolivia.
Speaker Change: This quarter, low-cost deposits continue to grow and now represent 54.5% of total deposits.
Speaker Change: Despite the reduction in Peru's policy rate, we delivered higher NIM on the back of amortization of government program loans, repricing of our retail loan book in soles to reflect the higher cost of risk, and the repricing of our dollar book.
John Franco Ferrari: John Franco Ferrari will start the call with opening remarks about our improved macro environment and brief comments on our digital strategy execution, followed by Alejandro Perez-Reyes, who will present in more detail the evolution of key macro figures, our financial performance, and revised outlook for 2024. John Franco, please go ahead. Thank you, Miraros. Good morning, everyone. Thank you for joining us today. During the quarter, we made significant progress in executing our strategic initiatives across most of our operations, resulting in a sound first half of the year.
Speaker Change: And up to 8.2% boosted by the aforementioned dynamics.
Alejandro Pérez Reyes: Other core incomes, which are the salary, income, and gains on FX operations, evolved strongly, boosted by BCP and to a lesser extent by Credicorp Capital. PISA's BCP benefited from monetization initiatives at IAPE and solid transactional activity through credit and debit. Lastly, insurance underwriting results rose 6.4%, which reflected a reduction in expenses from the disability and survivorship product in the lifetime. The cost of risk rose to 3%, driven by a weakening of payment capacities in SME PYME and a deterioration in payment performance in credit. The NPR ratio rose 33 basis points to 6% as delinquents increased, mainly through consumer, mortgage, and credit card loans at BCP. Consequently, NPL coverage to the 95.
Speaker Change: Other core incomes, which is the salary income and gains on FX operations, evolved strongly, boosted by BCP and to a lesser extent by Credicorp capital.
Speaker Change: FISA's BCP benefited from monetization initiatives at IAPE and solid transactional activity through credit and debit cards.
John Franco Ferrari: Our financial results were robust. Ending the quarter with resumed loan growth are resilient, risk-adjusted, and a solid balance sheet. Importantly, as the economy improves, we are well-positioned to continue to leverage additional opportunities and advance on our mission to efficiently provide products and services that meet our client's needs while promoting financial inclusion.
Speaker Change: Lastly, insurance underwriting results rose 6.4%, which reflected a reduction in expenses from the disability and survivorship products in the life business.
Speaker Change: The cost of risk rose to 3%, driven by a weakening of payment capacities in SME PYME and a deterioration in payment performance in credit cards.
Speaker Change: The NPR ratio rose 33 basis points to 6% as delinquents increased, mainly through consumer, mortgage and credit card loans at BCP.
John Franco Ferrari: Before we turn to discussing several specific areas of our focus at critical, I'd like to comment on the context in which we are operating, particularly improved. GDP growth projections from local economies have been revised upwards and now aligned with our expectations of GDP growth of 3% for 2024. Improved weather conditions have probably benefited the economy, especially the fishing of agriculture and textile industry. Despite the ongoing government fragility, inflation remains among the lowest in the Latin American region.
Speaker Change: Consequently, NPL coverage stood at 95%.
Alejandro Pérez Reyes: This quarter, we delivered an ROE of 16.2% on the back of solid expansion in margins and an uptick in transactional activity and disciplined cost control. The Peruvian economy continues to recover. Economic activity increased 5% year over year in May. Estimates indicate that GDP expanded 4% year-over-year in the second quarter, the highest quarterly growth rate in almost three years. The agricultural, fishing, and primary manufacturing sectors accounted for approximately half of GDP growth, bolstered by the results of the first fishing season, which was cancelled in 2020.
Speaker Change: This quarter we delivered an ROE of 16.2% on the back of solid expansion in margins and uptick in transactional activity and disciplined cost control.
Speaker Change: Next slide, please.
Speaker Change: The Peruvian economy continues to recover. Economic activity increased 5% year-over-year in May.
Speaker Change: Estimates indicate that GDP expanded 4% year-over-year in the second quarter, the highest quarterly growth rate in almost three years.
John Franco Ferrari: With improved purchase in power, paid in the way for the central bank to further reduce its benchmark interest rate. With this, our team is expecting the consumer segment to improve in this second half of the year. These factors, combined with increased public investment and high copper and gold prices, underscore expectations for economic growth, high-lightings per-use resilience.
Speaker Change: The agricultural, fishing, and primary manufacturing sectors accounted for approximately half of GDP growth, bolstered by the results of the first fishing season, which was cancelled in 2023.
Alejandro Pérez Reyes: Non-primary sectors grew close to 3% year-over-year. High commodity prices, particularly copper and gold, which make up 50% of our exports. Although this has not yet translated into overall growth, it should act as a tailwind for the coming quarters and years, especially if a new mining investment cycle materializes with the execution of large projects such as Tia Mara, Safranal, and Michiquillay, among others, which will require more than $6 billion in investment. Additionally, the inauguration of the Chang'e port, which is slated for November, could also help boost the economy in the Middle East.
Speaker Change: Non-primary sectors grew close to 3% year-over-year.
Speaker Change: High commodity prices, particularly of copper and gold, which make up 50% of our exports.
Speaker Change: Drove Terms of Trade to a historical high in May. Although this has not yet translated into overall growth, it should act as a tailwind for the coming quarters and years.
John Franco Ferrari: Turning now to our second quarter results. We delivered a sound ROE of 16.2% driven mainly by universal banks, insurance and investment management and advisory. Supported by an improved loan growth and high transactional activity in a recovering economy. Risk adjustment in remain resilient. Reflecting strength and balance dynamics, a disciplined interest rate management strategy and our leading low cost funding position, which together compensate for our control, although still high level of provisions. Additionally, having declared our dividend last quarter, we maintain a strong sovereignty and balance position, both of which are crucial to navigate the current rates high-go headwinds. We continue to see significant benefits from investing in innovation and enhancing our digital capabilities, which are fortifying our comparative modes, elevating our relationships with current clients and expanding financial inclusion.
Speaker Change: Especially if a new mining investment cycle materializes with the execution of large projects such as Tia Maria, Safranal, Michiquillay, among others, which will require more than $6 billion in investment.
Speaker Change: Additionally, the inauguration of the Chancay port, which is slated for November, could also help boost the economy in the medium term.
Alejandro Pérez Reyes: Public investment has ramped up. In the first half of the year, it increased nearly 30% year over year in real terms, the highest rate in 12 years, excluding the pandemic. As for public-private investment projects, Proinversión awarded $5.1 billion in the first six months of 2024.
Speaker Change: Public investment has ramped up. In the first half of the year, it increased nearly 30% year-over-year in real terms, the highest print in 12 years excluding the pandemic.
Speaker Change: As for public-private investment projects, Proinversión awarded $5.1 billion in the first six months of 2024, the highest amount granted in 10 years, out of an $8 billion goal for the entire year.
Alejandro Pérez Reyes: The highest amount granted in 10 years, out of an $8 billion goal for the entire year. According to the Ministry of Economy and Finance, this amount is expected to double in 2020. The Central Bank Expectations Indicators have recovered, positioning in the optimistic range in four of the last five surveys, a trend not seen since before the pandemic. Even in the current economic environment and despite political challenges, we reaffirm our forecast that Peru's GDP will grow around. Lots of central banks are ahead of the United States in the ECN cycle. Market participants expect Fed rate cuts in the coming months, but doubts exist regarding the pace.
Speaker Change: According to the Ministry of Economy and Finance, this amount is expected to double in 2025.
Speaker Change: The Central Bank's expectations indicators have recovered, positioning in the optimistic range in four of the last five surveys, a trend not seen since before the pandemic.
John Franco Ferrari: Looking ahead, we maintain our GDP growth project expectations of 3% for this year and expect a similar outlook for 2025.
Speaker Change: Even in the current economic environment, and despite political challenges, we reaffirm our forecast that Peru's GDP will grow around 3%.
John Franco Ferrari: I'd like to take a few moments to address the performance of Nivancope U. We believe we have the right hybrid business model strategy, which combines high-touch in-person visits from relationship managers with digital tools, including centralized risk assessment and an expert team in place.
Speaker Change: Next slide, please.
Speaker Change: Latin Central Banks are ahead of the United States in the ECM cycle. Market participants expect Fed rate cuts in coming months, but doubts exist regarding the pace. As such, elevated rates in dollars continue to challenge emerging markets.
Alejandro Pérez Reyes: As such, elevated rates in dollars continue to challenge emerging markets. In Peru, headline inflation currently sits comfortably within the target range, while core inflation stands at the upper limit of the range. However, in July, core inflation showed less persistence compared to previous months. Consequently, yesterday, Peru's central bank cut its policy rate by 25 basis points to 5.5%, accumulating a total reduction of 225 basis points since September of 2020. The rate is expected to stand around 5% by the end of the year.
John Franco Ferrari: However, we're currently working on an extraordinary circumstances. Systemic issues are affecting the improving microfinance industry characterized by a high complex grade cycle, where the linkancies and cost of risk are at the highest levels since 2008. Although we're seeing type of rebound in consumer behavior, the most vulnerable segments served by microfinance will be the last to recover. In this context, while Nivancope performing better than its peers, we fell short of our expectations, and we still do not feel comfortable with respect to the risk assessment of our portfolio. We're currently conducting a thorough review of our risk capabilities while keeping a strong focus on efficiency and a step to have a much better assessment in the upcoming quarter.
Speaker Change: In Peru, headline inflation currently sits comfortably within the target range.
Speaker Change: while Core Inflation stands at the upper limit of the range. However, in July, Core Inflation showed less persistence compared to previous months.
Speaker Change: Consequently, yesterday, Peru's central bank cut its policy rate by 25 basis points to 5.5 percent, accumulating a total reduction of 225 basis points since September of 2023.
Speaker Change: The rate is expected to stand around 5% by the end of the year.
Alejandro Pérez Reyes: In Colombia, inflation remains among the highest of the region at 6.9% year-over-year in July. Although the Central Bank has lowered its policy rate to 150 basis points since December, it remains high at 10.75%. Finally, in Chile, the central bank gradually reduced the pace of monetary easing and decided to pause in July as the bulk of the cuts have already occurred and upward inflation risks.
Speaker Change: In Colombia, inflation remains among the highest of the region at 6.9% year-over-year in July .
Speaker Change: Although the Central Bank has lowered its policy rate to 150 basis points since December , it remains high at 10.75%.
Speaker Change: Finally, in Chile, the central bank has gradually reduced the pace of monetary easing and decided to pause in July as the bulk of the cuts have already occurred and upward inflation risks persist.
John Franco Ferrari: Since launching our microfinance business in 2009, we have navigated various market cycles generating good returns for the period. I am confident that a profitability will recover, although gravely done anticipated. We remain the industry leader in supporting the significant and essential population segments that Nivancope served.
Speaker Change: Next slide, please.
Alejandro Pérez Reyes: BGP results remain strong, boosted by a rebound in economic activity and an uptick in liquidity across the financial sector. Analyzing Key-Quarter Over-Quarter Dynamics What we see is that total loans measured in average daily balances grew 1.3% driven mainly by a rebound in short-term wholesale loans. NII rose 1.9%, fueled by an uptick in interest income from loans via short-term financing in corporate banking and by a drop in interest expenses via increasing the share of low-cost deposits. Loan loss provisions rose 29.4%. However, if we isolate the impact of the reversal of El Nio provisions that took place in the first quarter of 2024, provisions fell 3%.
Speaker Change: BCP results remain strong, boosted by a rebound in economic activity and an uptick in liquidity across the financial system.
Speaker Change: Analyzing key quarter-over-quarter dynamics, what we see is that total loans measured in average daily balances grew 1.3% driven mainly by rebound in short-term wholesale loans.
John Franco Ferrari: In Ivanko, Colombia, we implemented a strategy last year to build our business back on course, which included management changes. While there's still much work to be done, this business is now performing better in relative terms and is in line with our expectations. To sum up, we remain fully committed to the long-term potential of Ivanko and believe that it offers a valuable contribution to break off portfolio of businesses.
Speaker Change: NII rose 1.9% fueled by an uptick in interest income from loans via short-term financing in corporate banking and a drop in interest expenses via increasing the share of low-cost deposits.
Speaker Change: Loan loss provisions rose 29.4%.
Speaker Change: If we isolate the impact of the reversal of El Niño provisions that took place in the first quarter of 2024, provisions fell 3%.
John Franco Ferrari: Turning to the next slide. We're proud to have a premier disruptive financial franchise in Latin America underpin by a well-defined strategy and clear goals. Our strategy is geared towards delivering the best experience in the most efficient way to remain competitive while investing in long-term sustainable growth.
Alejandro Pérez Reyes: This decline was driven by a drop in provisions for consumer and mortgage loans, which was partially offset by an increase in wholesale provisions. Other income grew 11.2%, driven mainly by fee income, which was bolstered by growth in payments through the APE, an uptick in transactions and disbursement fees at BCP, and a rising gain on FX transactions through growth in operations via digital transactions. On a year-over-year basis, NIU grew 10.4%, mainly due to growth in interest, income, and loans.
Speaker Change: This decline was driven by a drop in provisions for consumer and mortgage loans, which was partially offset by an increase in wholesale provisions.
Speaker Change: Other income grew 11.2%, driven mainly by fee income, which was bolstered by growth in payments through IAPE, an uptick in transactions and disbursement fees at BCP, and a rise in gains on FX transactions through growth in operations via digital channels.
John Franco Ferrari: Since 2022, we have ramped up our investments in innovative and disruptive initiatives. To improve our digital and analytical capabilities, positioning us to become an only channeled financial services company with a deep understanding of our customer needs. We are now seeing tangible results in both our core businesses like BCP and our disruptive ones like Gapis. These initiatives are delivering more digital customers. These are clients and digital monetary transactions, having increased 9 percentile points and 30 percentile points respectively year-over-year.
Speaker Change: On a year-over-year basis, NIU grew 10.4%, mainly by growth in interest, income, and loans.
Alejandro Pérez Reyes: Growth in low-cost deposits triggered a decrease in interest expenses, which also contributed to the uptick in NIRs. However, loan loss provisions rose 29.1% due to the deterioration in old vintages, particularly among loans originated in the first half of 2023 and mainly in SME, PYME, and CREDIC. Other income rose 16.7%, impacted by growth in fee income via YAPI and by an uptick in credit and debit card financing. Operating expenses increased 11.3% year-to-date.
Speaker Change: Growth in low-cost deposits triggered a decrease in interest expenses, which also contributed to the uptick in NII.
Speaker Change: Loan loss provisions rose 29.1% due to the deterioration in old vintages, particularly among loans originated in the first half of 2023 and mainly in SME PIME and credit cards.
Speaker Change: Other income rose 16.7% impacted by growth in fee income via IAPI and by taking credit and debit card transactions.
John Franco Ferrari: With digital clients, we are more than 21 percent points in the last two years. We have greater customer engagement, increased primary banking relationships and expanded deposits with provider access to highly competitive funding. Our GCP enhanced customer insights, increased client touch points and strengthened digital and analytical capabilities at delivering positive results. We can now offer our customers tailor-made products leading to increased engagement and higher satisfaction, as reflected in the 11 percentile points improvement in our consumer clients and BS in the last two years.
Speaker Change: Operating expenses increased 11.3% year-to-date. This was driven mainly by an increase in the headcount of specialized digital talent and an uptick in cloud service use.
Alejandro Pérez Reyes: This was driven mainly by an increase in the headcount of specialized digital talent and an uptick in cloud services. In this context, BCP's contribution to ROE stood at 23.7%. BCP Bolivia's positive results in the second quarter of this year reflect the denialism within its lower-risk wholesale portfolio and growing transactional features. As anticipated, we are gradually increasing disclosure for IAPE.
Speaker Change: In this context, BCP's contribution to ROE stood at 23.7%.
Speaker Change: BCP Bolivia's positive results in the second quarter of this year reflect the denialism within its lower-risk wholesale portfolio and growing transactional features.
Speaker Change: Next slide, please.
Alejandro Pérez Reyes: Today, I would like to announce that revenue generation at IAPE continues to accelerate and reach the break-even milestone in May. Ongoing growth in Yafes revenues, which rose 1.5 times versus the print in the second quarter of last year, reflects consistent advances in its three businesses. The APEX payment business line, which is the main generator of income, grew through billed payments, where transaction volume rose 4.6 times, and via total payment volume, which increased 111% compared to the second quarter of last year.
Speaker Change: As anticipated, we are gradually increasing disclosure for IAPE. Today, I would like to announce that revenue generation at IAPE continues to accelerate and reach the break-even milestone in May.
John Franco Ferrari: Our development of digital distribution and consistent has boosted income while reducing unit costs. As a result of this initiative, BCP's efficiency ratio has fallen 190 base points in the last five years. Leveraging our digital capabilities, we are meeting banking needs anytime, anywhere and creating a positive network effect driving sustainable growth.
Speaker Change: Ongoing growth in Yafes revenues, which rose 1.5 times versus the print in the second quarter of last year, reflects consistent advances in its three business lines.
Speaker Change: The APEX payment business line, which is the main generator of income, grew through bill payments, where transaction volume rose 4.6 times, and via the total payment volume, which increased 111% compared to the second quarter of last year.
John Franco Ferrari: Our aim is to develop world-class solutions and features that bring the impact into the financial system and try to retain customers. Additionally, we are committed to continuing our investment in technology and digital transformation, providing it continues to drive growth, develop efficiencies and optimize our businesses in the long run. This strategic approach to investing ensures that we not only lead today but also secure our success for tomorrow.
Alejandro Pérez Reyes: Within the financial business line, in addition to the margin obtained from floating based on deposit bias, microloans became an income generation. In the second quarter of 2024, disbursement of single installment and multi-installment loans grew 3.2 times year over year.
Speaker Change: Within the financial business line, in addition to the margin obtained from floating based on deposit balances,
Speaker Change: In the second quarter of 2024, disbursement of single installment and multi-installment loans grew 3.2 times year over year.
Alejandro Pérez Reyes: Despite strong growth, the financial business line is in its early stages. We are developing differentiated risk management capabilities based on transactional data from daily use, which should help us grow this line properly. And finally, within the marketplace business, gross merchant volume doubled year over year. Moving on to Mi Banco.
Speaker Change: Despite strong growth, the financial business line is in its early stages. We are developing differentiated risk management capabilities based on transactional data from daily use which should help us grow this line profitably.
John Franco Ferrari: Finally, I would like to give you a brief update on Japan. Alejandro will go into more details shortly and will take a deeper dive during our break-up strategic update event on September 20th.
Speaker Change: Finally, within the marketplace business, gross merchant volume doubled year over year.
John Franco Ferrari: With over 15.9 million customers and income per user of 4.1 solace up from 3.7 solace in Q1, I am proud when you announce that in Q2, YAPA reached a surprise break even at a head of our expectations. Income growth accelerated and diversified with a continued addition of functionality in all fill lines of business. Our investment in YAPA is clearly paying off.
Speaker Change: Next slide, please.
Alejandro Pérez Reyes: On a quarter over quarter rate, the microfinance industry continues to evolve in a complicated way. At Mi Banco, total loans measured in average daily balances fell 3.2%, impacted by stricter origination policies and lower demand for loans in general. This drop reflects a contraction in higher-ticket loans, which was partially offset by growth in small-ticket, higher-yield loans. Despite dropping loans, NII increased 1.9%, mainly due to a drop in the cost of funding after the funding rate was repriced to take advantage of lower rates.
Speaker Change: Moving on to Mi Banco.
Speaker Change: on a quarter over quarter basis.
Speaker Change: The microfinance industry continues to evolve in a complicated context.
Speaker Change: At Mi Banco, total loans measured in average daily balances fell 3.2%, impacted by stricter origination policies and lower demand for loans in general.
Speaker Change: This drop reflects a contraction in higher-ticket loans, which was partially offset by growth in small-ticket, higher-yield loans.
John Franco Ferrari: According to Cantal Studio, YAPA is now the top of mind-grant in Peru across any industry.
Speaker Change: Despite dropping loans, NII increased 1.9%, mainly due to the drop in the cost of funding after the funding rate was repriced to take advantage of lower rates.
Alejandro Perez-Reyes: Now let me welcome Alejandro to his first results call as our CFO. He will discuss in more detail the macro environment and the operational and financial performance of our business units. Alejandro, go ahead. Thank you, Yapango. Good morning, everyone. I am pleased to join you in my first call as CFO. I look forward to building on the solid foundation that has been set and is reflected today in our strong solvency, strong balance and stable profitability.
Alejandro Pérez Reyes: In this context, NIM increased 19 basis points and stood at 13 points. If we isolate the impact of the El Nio provision reverse of last quarter, provision rose 19.8%. This evolution reflects a deterioration in the payment performance of old vintages.
Speaker Change: In this context, NIM increased 19 basis points and stood at 13.6%.
Speaker Change: If we isolate the impact of El Niño provision reverse of last quarter, provision rose 19.8%.
Speaker Change: This evolution reflects a deterioration in the payment performance of old vintages, higher write-offs, and weakening in the payment capacity of vulnerable clients, who continue to be impacted by adverse events in 2023.
Alejandro Pérez Reyes: Higher write-offs and a weakening in the payment capacity of vulnerable clients who will continue to be impacted by adverse events in 2020. The uptick in interest income was boosted by income from the investment portfolio and by a drop in interest expenses after the funding base was reduced. Provisions increased 31.6% due to the same dynamics mentioned there. Operating expenses on a year-to-date basis remain under control, and efficiency stood at 52.1%.
Alejandro Perez-Reyes: Moving on to quarterly results, as Yapango mentioned, we delivered solid overall operating and financial results. As I discussed the highs of the quarter, I will focus on the year-over-year results which are not impacted by seasonality. Longs began trending upward to stand at 2.9% measured in quarter end balances. Measured in early balances, long growth stood at 0.2%. Given primarily by an uptick in mortgage volumes at BCP and BCP Bolivia. This quarter, low cost deposits continue to grow and now represent 54.5% of total deposits.
Speaker Change: Thank you. Thank you.
Speaker Change: From a year-over-year perspective, NII was up 2.6%. The uptick in interest income was boosted by income from the investment portfolio and by a drop in interest expenses after the funding base was repriced.
Speaker Change: Provisions increased 31.6% due to the same dynamics mentioned earlier.
Speaker Change: Operating expenses on a year-to-date basis remain under control and efficiency stood at 52.1%.
Alejandro Pérez Reyes: Finally, ROE stood at 5.4%, negatively impacted by a contraction in loans and high provision of debt. This scenario was similar across the microfinance industry and reflects the challenges of complex credit. Ivanco Colombia was impacted by a deteriorating economic condition, ongoing high inflation, very high funding rates, and a reduction in interest rates.
Speaker Change: Finally, ROE stood at 5.4%, negatively impacted by a contraction in loans and high provision levels.
Speaker Change: This scenario was similar across the microfinance industry and reflected challenges of a complex credit cycle.
Alejandro Perez-Reyes: Despite the reduction in produce policy rates, we delivered higher name on the back of a mortization of governance program known, repricing of our retail loan book in Solis to reflect the higher cost of risk and the repricing of our dollar book. In 2008.2%, boosted by the aforementioned dynamics. Other core income, which is the starting income and gains on FX operations, evolved strongly, boosted by BCP and to a lesser extent by credit or capital.
Speaker Change: and Ivanko Colombia have been impacted by deteriorating economic conditions.
Speaker Change: Ongoing high inflation, very high funding rate and a reduction in the interest rate ceiling.
Alejandro Pérez Reyes: We have a profitable growth strategy where we have slowed portfolio growth by emphasizing risk control and efficiency. This strategy is leading us to perform better in relative terms and in line with our expectations. Profitability at Grupo Pacifico continues to be strong, with ROE standing at 26.4%. However, in quarter over quarter terms, net income dropped 10%, negatively impacted by higher income tax expenses, other non-recurrent expenses, and lower gains from investment in associates via the Corporate Health Insurance Joint Venturing Program.
Speaker Change: We have a profitable growth strategy where we have slowed portfolio growth by emphasizing risk control and efficiency.
Speaker Change: This strategy is leading us to perform better in relative terms and in line with our expectations.
Speaker Change: Profitability at Grupo Pacifico continues to be strong, with ROE standing at 26.4%.
Alejandro Perez-Reyes: Peace at BCP benefited from monetization initiatives at YAPE and solid transactional activities through credit and debit cards. Lastly, insurance and the writing results rose 6.4%, which reflected our reduction in expenses from the disability and survivorship product in the life business. The cost of risk rose to 3%, driven by a weakening of payment capacities in SME-PME and other deterioration in payment performance in credit cards. The MPL ratio rose 33 basis points to 6% as the link was increased, mainly through consumer, mortgage and credit card loans at BCP. Consequently, MPL coverage stood at 95%. This quarter, we delivered an ROE of 16.2% on the back of solid expansion in margins and at stake in transactional activity and discipline cost control.
Speaker Change: In quarter over quarter terms, net income dropped 10%, negatively impacted by higher income tax expenses, other non-recurrent expenses, and lower gains from investment in associates via the Corporate Health Insurance Joint Venture in particular.
Alejandro Pérez Reyes: Insurance underwriting results rose 19% primarily due to a base effect in the PNC business as reinsurance results normalized after a particularly unfavorable first quarter. The life business also contributed positively as claims dropped, particularly for credit, life, and disability, and survivorship products. From a year-over-year perspective, Grupo Pacfico's net income dropped 6%.
Speaker Change: Insurance underwriting results rose 19% primarily due to a base effect in the PNC business as reinsurance results normalized after a particularly unfavorable first quarter.
Speaker Change: The life business also contributed positively as claims dropped, particularly for credit, life,
Speaker Change: and disability and survivorship products.
Speaker Change: From a year-over-year perspective, Grupo Pacífico's net income dropped 6%.
Alejandro Pérez Reyes: This decline was primarily driven by growth in expenses for income tax and higher interest expenses associated with life insurance. However, improvement in insurance and the writing results, mainly via the live business, partially offset these dynamics.
Speaker Change: This decline was primarily driven by growth in expenses for income tax and higher interest expenses associated with life insurance contracts.
Speaker Change: An improvement in insurance and the writing results, mainly via the live business, partially offset these dynamics.
Alejandro Perez-Reyes: Next slide, please. The Peruvian economy continues to recover. Economic activity increased 5% year-over-year in May. Estimates indicate that GDP expanded 4% year-over-year in the second quarter. The 24-year-old growth rate in almost 3% year-over-year in the second quarter.
Alejandro Pérez Reyes: Profitability in the investment management and advisory business increased by 386 basis points quarter over quarter, with ROE standing at 18.6%. On a quarter-over-quarter basis, net income registered a robust 27%. This positive dynamic was primarily attributable to an improvement in the performance of sales and trading in our capital market. The trading unit leveraged great volatility to capitalize on opportunities. While the sales unit saw a surge in transactional activity among our corporate clients, in addition, we registered a significant contribution from our now discontinued Corporate Finance Business Unit, which was related to the past.
Speaker Change: Let it lie, please.
Speaker Change: Profitability in the investment management and advisory business increased by 386 basis points quarter over quarter, with ROE standing at 18.6%.
Alejandro Perez-Reyes: The Agricultural Fishing and Primary Manufacturing Insectors accounted for approximately half of GDP growth, bolstered by the results of the first fishing system, which was cancelled in 2033. Non-primary sectors grew close to 3% year over year. High-quality prices, particularly of copper and gold, which make up 50% of our exports, drove terms of trade to a historical high in May. Although they have not yet translated into overall growth, it should act as a tailwind for the coming quarters and years, especially if a new mining investment cycle materializes with the execution of large projects such as the Amaria, Safranal, Michikii among others, which will require more than $6 billion in investment.
Speaker Change: On a quarter-over-quarter basis, net income registered a robust 27% increase.
Speaker Change: This positive dynamic was primarily attributable to an improvement in the performance of sales and trading in our capital markets business.
Speaker Change: The trading unit leveraged great volatility to capitalize on opportunities, while the sales unit saw a surge in transactional activity among our corporate clients in Colombia.
Speaker Change: In addition, we registered a significant contribution from our now discontinued Corporate Finance Business Unit related to the past deal.
Alejandro Pérez Reyes: These favorable business dynamics were partially offset by a rise in income tax. However, on a year-over-year basis, net income rose 12%, bolstered by the robust performance of our capital market. Both our Wealth and Asset Management businesses also contributed to the uptick, with AUMs climbing 15% and 20% in U.S. dollars, respectively. However, these positive business dynamics were partially offset by a drop in treasury results and an uptick in income taxes. Now we will analyze Credicorp on a consolidated basis, starting with favorable balance sheets and pricing dynamics, which drove a strong NII.
Speaker Change: These favorable business dynamics were partially offset by a rise in income, tax, and expense.
Speaker Change: On a year-over-year basis, net income rose 12 percent, bolstered by the robust performance of our capital market business.
Alejandro Perez-Reyes: Additionally, the inauguration of the Chiang Kai port, which is related for November, could also help with the economy in the medium term. Public investment has run tough. In the first half of the year, it increased nearly 30% year over year in real terms. The highest print in 12 years, excluding the pandemic. As for public private investment projects, pro-inversion awarded $5.1 billion in the first 6 months of 2024, the highest amount granted in 10 years, out of a $8 billion gold for the entire year.
Speaker Change: Both our wealth and asset management businesses also contributed to the uptick, with AUMs climbing 15% and 20% in U.S. dollars respectively.
Speaker Change: This positive business dynamics were partially offset by a drop in pressure results and an upticking income tax expense.
Speaker Change: Excellent.
Speaker Change: Now we will analyze Credit Corp. at a consolidated basis, starting with favorable balance sheets and pricing dynamics, which drove a strong NII.
Alejandro Pérez Reyes: On a quarter-over-quarter basis, on the asset side, loan balances resumed growth, driven primarily by wholesale lending and, to a lesser extent, by retail loans. These dynamics, coupled with favorable pricing, helped us maintain resilient yields on interest earnings. On the liability side, our funding advantage in low-cost deposits was further boosted by inflows from pension fund withdrawals.
Speaker Change: On a quarter-over-quarter basis, on the asset side, loan balances resume growth, driven primarily by wholesale lending and to a lesser extent by retail loans.
Alejandro Perez-Reyes: According to the Ministry of Economy and Finance, this amount is a huge expected to double in 2025. The Central Bank's expectations indicators have recovered, positioning in the optimistic range in four of the last five services, a trend not since before the pandemic.
Speaker Change: These dynamics, coupled with favorable pricing, helped us maintain resilient yields on interest-earning assets.
Speaker Change: And the liability side, our funding advantage in low-cost deposits was further boosted by inflows from pension fund withdrawals. In this context, the funding cost fell 12 basis points outpacing the reduction in the yield on interest-earning assets, which fell 6 basis points.
Alejandro Pérez Reyes: In this context, the funding cost fell 12 basis points, outpacing the reduction in the yield on interest-earning assets, which fell 6 points. On a year-over-year basis, asset growth was driven by long growth in the SME PYME, SME Business, and Middle Market segments of the company. The investment portfolio balance also rose, driven by our ongoing strategy to increase the duration of interest earnings. These dynamics led the yield on interest-earning assets to rise 25 basis points despite a drop in interest rates.
Alejandro Perez-Reyes: Even the current economic environment and despite political challenges, we reaffirmed our forecast that Peru's GDP will grow around 3%.
Alejandro Perez-Reyes: Next slide, please. The Central Bank are ahead of the United States in the ECN cycle. Market participants expect Fed rate cuts in coming months, but does exist regarding the pace.
Speaker Change: On a year-over-year basis, asset growth was driven by long growth in the SME business and middle market segments of DCP.
Alejandro Perez-Reyes: A such elevated rate in dollars continues to challenge emerging markets. In Peru, headline inflation currently sits comfortably within the target range, while core inflation stands at the upper limit of the range. However, in July, core inflation showed less persistence compared to previous months. Consequently, yesterday, Peru's Central Bank had its policy rate by 25 basis points to 5.5%. Accurulating a total reduction of 225 basis points since September of 2023. The rate is expected to stand around 5% by the end of the year.
Speaker Change: The investment portfolio balance also rose, driven by our ongoing strategy to increase the duration of interest-earning assets.
Speaker Change: These dynamics led the yield on interest-earning assets to rise 25 basis points despite a drop in interest rates.
Alejandro Pérez Reyes: On the funding side, the aforementioned increase in low-cost deposits and a downward re-rate of our time-deposit balance led the funding costs to collapse. This evolution was partially offset by an increase in wholesale funding costs, which was impacted by a BCP bond issuance earlier this year. These dynamics led the cost of funding to drop 5%.
Speaker Change: On the funding side, the aforementioned increase in low-cost deposits and a downward re-rate of our time-deposit balance led the funding costs to contract.
Speaker Change: This evolution was partially offset by an increase in wholesale funding costs, which was impacted by a BCP bond issuance earlier this year.
Speaker Change: These dynamics led the cost of funding to drop 5 basis points.
Alejandro Pérez Reyes: Our risk-adjusted NIEM remained resilient, supported by growth in NII, which alongside a rise in fee income and FX transactions, boosted core income. On a quarter-over-quarter basis, NIM increased 3 basis points to stand at 6.33%, while risk-adjusted NIM stood at 4.4%. If we isolate the effect of a reversal in linear provisions last quarter, risk-adjusted LIM was flat.
Speaker Change: Next slide, please.
Alejandro Perez-Reyes: In Colombia, inflation remains among the highest of the region at 6.9% year over year in July. Although the Central Bank has lowered its policy rate to 150 basis points since December, it remains at 10.75%.
Speaker Change: Our risk-adjusted NIEM remained resilient, supported by growth in NII, which alongside a rise in fee income and FX transactions, boosted core income.
Speaker Change: On a quarter-over-quarter basis, NIM increased three basis points to stand at 6.33%, while risk-adjusted NIM stood at 4.4%.
Alejandro Perez-Reyes: Finally, in Chile, the Central Bank has gradually reduced the pace of monetary easing and decided to pause in July as the bulk of the cuts have already occurred and upward inflation risks persist.
Speaker Change: If we isolate the effect of a reversal in linear provisions last quarter, risk-adjusted LIM was flat.
Alejandro Pérez Reyes: Core income increased 3.9%, bolstered by NIA and strong growth in both fee levels and effect transaction volumes, where the main drivers were BCP and Credicorp Capital. At BGP, growth in the field level was fueled mainly by IAPE and by core transactional services. Income from FX transactions grew 31.1%, bolstered by transactions through digital channels and wholesale banking.
Alejandro Perez-Reyes: Next slide please. NII rose 1.9% fueled by an attic in interest income from loans via short-term financing in corporate banking, and a drop in interest expenses via increasing the share of low-cost deposits. Lone loss provisions rose 29.4%.
Speaker Change: Core income increased 3.9% bolstered by NIA and strong growth in both fee level and effect transaction volumes, where the main drivers were BCP and credit core capital.
Speaker Change: At BGP, growth in the field level was fueled mainly by IAPE and by core transactional services.
Speaker Change: Income from FX transactions grew 31.1%, bolstered by transactions through digital channels and wholesale banking. At Credit Corp Capital, core businesses drove a solid fee-income result.
Alejandro Pérez Reyes: At Credicorp Capital, core businesses drove a solid fee income. On a year-over-year basis, NIEM rose 31 basis points, while risk-adjusted NIEM fell 31 points. Growth in other income was driven by BCP due to the same dynamics seen a quarter ago. Lai, please.
Speaker Change: On a year-over-year basis, NIM rose 31 basis points while risk-adjusted NIM fell in 31 basis points.
Speaker Change: Growth in other income was driven by BCP due to the same dynamics seen quarter over quarter.
Alejandro Perez-Reyes: If we isolate the impact of the reversal of El Nino provisions that took place in the first quarter of 2024, provisions fell 3%. This decline was ruined by a drop in provision for consumers and more get loans, which was partially upset by an increase in wholesale provisions. Other income grew 11.2% driven mainly by income, which was bolstered by growth in payment through the app, an attic in transactions, and this investment piece at BCP, and a rise in gains on ethics transactions to growth in operations via the EEDA channel.
Alejandro Pérez Reyes: Let's look at the dynamic for asset quality. It is important to note that the diversity of BCP's loan portfolio provides a natural buffer in the context of a challenging credit cycle for the Peruvian financial system. The bank, on the other hand, is more exposed given that it is concentrated on microbusiness clients who are more vulnerable. The cost of Rehab Credicorp stood at 3%.
Speaker Change: Next slide, please.
Speaker Change: Let's look at the dynamics for asset quality. It is important to note that the diversity of BCP's loan portfolio provides a natural buffer in the context of a challenging credit cycle for the Peruvian financial system.
Speaker Change: The bank, on the other hand, is more exposed given that it is concentrated in microbusiness clients who are more vulnerable.
Alejandro Pérez Reyes: Underlying risk, which isolates the effects of reversals of El Nio provisions, was flat quarter overcap. Let's go through the underlying risk dynamics. Provisions grew 2.4 percent quarter over quarter, driven by MiBanco and partly offset by VCF. At Mi Banco, growth in provisions was triggered by a deterioration in the payment performance of all vendors, which was concentrated in high-ticket loans, higher rates of and a weakening in the payment capacity of vulnerable clients. Within BCP, the contraction in provisions was driven by consumer, which reported a drop in new refinancing, and by mortgage, where an improvement in payment capacity was observed as clients leveraged. This evolution was partially offset by growth in provisions, in wholesale due to a base effect and in credit cards due to further deterioration of payment performance among vulnerables. On a year-over-year basis, provisions rose 35.9%, mainly through BCP and
Speaker Change: Cost of Risk at Credit Corp. stood at 3%.
Speaker Change: Underlying risk, which isolates the effects of reversals of El Niño provisions, was flat quarter over quarter.
Alejandro Perez-Reyes: On a year-over-year basis, NII rose 10.4% fueled mainly by growth in interest income and loans. Growth in low-cost deposits triggered a decrease in interest expenses, which also contributed to the attic in NII. Lone loss provisions rose 29.1% due to the deterioration of the entities, particularly among loans originated in the first half of 2023, and mainly in SME Pima and credit cards. Other income rose 16.7% impacted by growth in fee income, the IAPE, and by an attic in credit and debit card transactions.
Speaker Change: Let's go through underlying risk dynamics.
Speaker Change: Prohibitions grow 2.4 quarter over quarter, driven by MiBanco and partly offset by BCP.
Speaker Change: At Nivanco, growth in provisions was triggered by a deterioration in the payment performance of all vintages.
Speaker Change: which was concentrated in high-ticket loans.
Speaker Change: higher RITOS, and a weakening independent capacity of vulnerable clients.
Alejandro Perez-Reyes: Operating expenses increased 11.3% year-to-date. This was driven mainly by an increase in the headcount of specialized EEDA talent and an attic in cloud service use.
Alejandro Perez-Reyes: In this context, BCP's contribution to ROE stood up 23.7%. BCP Bolivia's positive thoughts in the second quarter of this year reflect the dynamism within its lower risk also portfolio and growing transaction office.
Alejandro Pérez Reyes: Within BCP, provisions grew primarily through SME payments and reflected weakening in the payment capacity of indebted clients and deterioration in the payment performance of all buyers. Additionally, provisions increased in credit cards via the same dynamics in the quarter overview. At Mi Banco, the uptick in provisions was driven by the same dynamics as those in Quartero Recorder. Moving on to non-performing loans. On a quarter-over-quarter basis, growth in non-performing loans was led by Mi Banco and partially offset by Biden.
Alejandro Perez-Reyes: Next slide please. As anticipated, we are gradually increasing disclosure for YAPE.
Alejandro Perez-Reyes: Today, I would like to announce that revenue generation at YAPE continues to accelerate and reach the break even milestone in May. On going growth in YAPE's revenues, which rose 1.5% times versus the print in the second quarter of last year, reflects consistent advances in its three business lines. YAPE's payment business line, which is the main generator of income, grew through built payments, where transaction volume rose 4.6 times, and via the total payment volume, which increased 111% compared to the second quarter of last year.
Alejandro Pérez Reyes: At MiBanco, NPL growth was driven by an uptick in delinquency in government program loans, which have high coverage levels, and by growth in delinquency in high-ticket loans among vulnerable clients affected by concurrent adverse events in 2020. Similarly, within BCP, the drop in MPLs reflects an improvement within SMEP. We're honoring processes for government loans are underway. This evolution was partially offset by an uptick in NPLs in credit cards and mortgages among vulnerable clients who are highly leveraged and lack stable networks.
Speaker Change: And the logical NPL growth was driven by an uptick in delinquency and government program loans, which have high coverage levels and by growth in delinquency in high ticket loans among vulnerable plants affected by concurrently adverse events in 2023.
Speaker Change: Within BCP the drop in Npls reflect that improvement within SME premiums.
Alejandro Perez-Reyes: Within the final business line, in addition to the margin obtained from floating based on the possible advances, micro loans became an income generator. In the second quarter of 2024, this investment of single installment and multi-spot loans grew 3.2 times year over year.
Speaker Change: We're underwriting processes for government loans are underway.
Speaker Change: This evolution was partially offset by an uptick in npls and credit cards, and mortgages and when will narrow or clients, who are highly leveraged and alacrity.
Alejandro Pérez Reyes: Deterioration in credit cards was concentrated in vintages originated in the first half of 2020. In this context, the NPL coverage ratio for total loans stood at 95% or 98.2% if we isolate the impact of government. We have learned lessons from this cycle and have taken measures to recover asset quality. However, at Mi Banco, a significant and growing number of clients have seen their income shrink, which has led to higher indebtedness and weakened payment capacity.
Speaker Change: Deterioration in credit cards was concentrated in vintages originated in the first half of 2023.
Alejandro Perez-Reyes: Despite from growth, the financial business line is in its early stages. We are developing differentiated risk management capabilities based on transactional data from daily use, which should help us grow this line profitability. Finally, within the marketplace business, rose merchant volume doubled year over year.
Speaker Change: In this context, the NPL coverage ratio for total loans stood at 95% or 98, 2%, if we isolate the impact of government at all.
We have learned lessons from this cycle and have taken measures to recover asset quality faster.
Speaker Change: <unk>, a significant and growing numbers of clients have seen their income stream, which has led to higher indebtedness and weekend payment capacity. In this context, we have stepped up restrictions as origination level as we are strengthening monitoring collections and reprogramming evaluation process.
Alejandro Perez-Reyes: Next like this. Moving on to my bank. On a quarter over a quarter basis, the microfinance industry continued to evolve in a complicated context. At Mivanco, total loans measured in average daily balances fell 3.2 percent, impacted by strict origination policies and lower demand for loans in general. This drop reflects a contraction in higher ticket loans, which was partially upset by growth in small ticket, higher yield loans. This drop in loans, NIA increased 1.9 percent, mainly due to the drop in the cost of funding after the funding rate was reprised to take advantage of lower rates.
Alejandro Pérez Reyes: In this context, we have stepped up restrictions at the origination level as we strengthen monitoring, collections, and reprogramming evaluation processes. While Milagros is performing better than its peers, we are still adjusting our risk management capabilities. At BCP, deterioration is concentrated in the vulnerable segment within individual clients. Despite most restricted origination and other temporary created facilities, exposure and deterioration continues to persist in this.
Speaker Change: Well I mean, it's performing better than its peers, we're still adjusting our risk management capabilities.
Speaker Change: At BCP deterioration is concentrated in the vulnerable segment within individual clients. Despite most restrictive origination and offered temporary grade facilities exposure on deterioration continues to persist in this segment.
Alejandro Pérez Reyes: We are taking more aggressive action by selectively tightening origination guidelines for vulnerable individuals and by offering medium-term rescheduling to both individuals and SME PIME clients in the second half of 2020. We will review the evolution of efficiency on an accumulated basis to isolate the impact of seasonal effects. Operating expenses grew 9.2%, driven primarily by core businesses at BCP and disruptive initiatives at the Credicorp level. Core businesses of DGP fuel growth in expenses through an uptick in IT expenses related to a move to attract talent to fill vacant positions and specialize digital talent and increased use of the cloud as clients become more digital and transaction levels. Expenses for disruptive initiatives at the Credicorp level rose 29.2%.
Speaker Change: We are taking more aggressive action by selectively tightening origination guidelines in vulnerable individuals since may.
Speaker Change: Over a medium term rescheduling to both individuals and SME clients in the second half of 2024.
Alejandro Perez-Reyes: In this context, name increased 19 basis points and 2.13.6 percent. If we isolate the impact of a linear provision in reverse of the quarter, provision rose 19.8 percent. This evolution reflects a deterioration in the payment performance of all the integers, higher write-offs and weakening in the payment capacity of vulnerable clients, who continue to be impacted by adverse events in 2023. From a year over year perspective, NIA was up 2.6 percent. The uptick in interest income was boosted by income from the investment portfolio and by a drop in interest expenses after the funding base was reprised. Provision increased 31.6 percent due to the same dynamics mentioned earlier. Operating expenses on a year-to-date basis remain under control and efficiency stood at 52.1 percent.
Speaker Change: It looks like this.
Speaker Change: Okay.
Speaker Change: We will review the evolution of efficiency on an accumulated basis to isolate the impact of seasonality.
Speaker Change: Operating expenses grew nine 2% driven primarily by core businesses at BCP and disruptive initiatives at a critical level.
Speaker Change: Our core businesses of DCP fueled growth in expenses through an uptick in expenses related to move to attract talent to fill the vacant positions and specialized talent and increased use of the cloud as clients become more digital and transaction levels increase.
Expenses for disruptive initiatives at a critical level rose 29, 2%.
Alejandro Pérez Reyes: The most significant expenditures were in Yape, Tempo, and Kulki, which together accounted for 66% of this semester's disruption. Finally, an uptick in operating income and decelerating operating expenses led the efficiency ratio to drop 19 basis points to stand at 44.3%, year to date, in the first half of 2024. This quarter, we stood at 16.2%, driven by strong results in our universal banking, insurance, and investment management and advisory business. Meanwhile, the ROE for the semester was 17.2%. These results are a testament to our resilience and ability to adapt to challenging circumstances. Now, I will move on to our updated guidance. As previously stated, our GDP growth expectation remains unchanged at around 3%.
Speaker Change: The most significant expenditures weighted temple, and cookie, which together accounted for 66% of the semester as disruptive expenses.
Alejandro Perez-Reyes: Finally, ROE stood at 5.4 percent, negatively impacted by a contraction in loans and high provision levels. This scenario was similar across the microfinance industry and reflected changes of a complex credit cycle. In Vancouver, Colombia has been impacted by deteriorating economic conditions, ongoing high inflation, very high funding rate and a reduction in the interest rate ceiling. We have a profitable growth strategy where we have slow portfolio growth by emphasizing risk control and efficiency. This strategy is lead not to perform better in relative terms and in line with our expectations.
Finally, an uptick in operating income and accelerating operating expenses led the efficiency ratio to drop 19 basis points to stand at 44, 3% year to date in the first half of 2024.
Speaker Change: Yes.
Speaker Change: This quarter.
Speaker Change: 16, 2% driven by strong results in our Universal banking insurance and investment management and advisory businesses. Meanwhile, the arrow for the semester was 17, 2%.
Speaker Change: These results are a testament to our resilience and ability to adapt to challenging circumstances.
Alejandro Perez-Reyes: Next slide, please. Profitability of the group of participants continues to be strong, with ROE standing at 26.4 percent.
Speaker Change: Now I will move on to our updated guidance next.
Speaker Change: Slightly.
Speaker Change: As previously stated our GDP growth expectation remains unchanged at around 3%.
Alejandro Perez-Reyes: In quarter or quarter terms, net income dropped 10 percent, negatively impacted by higher income tax expenses, other non-regorant expenses and lower gains from investment in associated via the corporate health insurance joint venture in particular. Insurance and the right in results rose 19 percent, primarily due to a base effect in the PNC business, as we insurance results normalized after a particularly unfavorable press quarter. The life business also contributed positively as claims dropped, particularly for credit life and disability and survivorship products.
Alejandro Pérez Reyes: Regarding loan growth, despite the recent pick-up in wholesale lending, our still cautious approach to origination in our retail banking and microfinance segments has led us to revise our guidance on total loan growth, measured in average daily balances, to the 1-3% rate. Our name is expected to stand by the end of the year towards the upper end of our guidance, which is between 6% and 6.4%. We expect the cost of risk to be situated around the upper end of our guidance, which is between 2 and 2.5.
Speaker Change: Regarding loan growth. Despite the recent pickup in wholesale lending are still cautious approach toward elimination in our retail banking in micro finance segment have led us to revise our guidance on total loan growth measured in average daily balances, so the 1% to 3% range.
Speaker Change: Our NIM is expected to stand by the end of the year towards the upper end of our guidance, which is between 6% and six 4%.
Speaker Change: We expect cost of risk to situate around the upper end of our guidance, which is between two and two 5%.
Alejandro Pérez Reyes: The credit cycle has proven to be longer and tougher than expected; although we are confident in the effectiveness of the credit measures taken, stress is likely to linger in the individuals and microfinance segments for the better part of the year. We achieved solid efficiency levels as we continue to invest in our disruptive initiatives. We are controlling growth in expenses at our core businesses to offset the aforementioned headwinds and expect to close the year with an efficiency ratio near the lower end of our guidance, which is between 46 and 48%. Given the aforementioned dynamics and the better-than-anticipated evolution of both our fee income and insurance underwriting results, we reaffirm our ROE guidance for 2024 at around $70,000. With these comments, we can move to the Q&A.
Speaker Change: The credit cycle has proven to be longer than thought hard unexpected. Although we are confident on the effectiveness of the grade measures taken the stress is likely to linger in the individual's in micro finance segments for the better part of the year.
Alejandro Perez-Reyes: From a year where your perspective, group of participants net income dropped 6 percent. This decline was primarily driven by growth in expenses for income tax and higher interest expenses associated with life insurance contracts. An improvement in insurance and the right in results mainly via the life business partially offset dynamics.
Speaker Change: We achieved solid efficiency levels as we continue to invest in our disruptive initiatives. We are controlling growth in expenses at our core businesses to offset the aforementioned headwinds and expect to close the year with an efficiency ratio near the lower end of our guidance, which is between 46 and 48%.
Alejandro Perez-Reyes: Next slide, please. Profitability in investment management and advisory business increased by 386 basis points quarter over quarter. With ROE standing at 18.6 percent. When a quarter or a quarter basis, net income registered a robust 27% increase. This positive dynamic was primarily attributable to an improvement in the performance of sales and trading in our capital markets business. The trading units leverage trade volatility to capitalize an opportunity, while the sales units saw a surge in transactional activity among our corporate clients in Colombia. In addition, we registered a significant contribution from our now discontinued corporate finance business unit related to a past deal.
Speaker Change: Given the aforementioned dynamics and the better than anticipated evolution of both our fee income and insurance underwriting results, we reaffirm our guidance for 2024 at around 17%.
Speaker Change: With these comments, we can move to a Q&A session.
Operator: We will now begin the question and answer session. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you have connected to the call using the HD web phone on your computer, please use the keypad on your computer screen. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.
Speaker Change: We will now begin the question and answer session. If you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you have connected to the call using the H D web phone on your computer. Please use the keypad on your computer screen, if you're using a <unk>.
Alejandro Perez-Reyes: This favorable business dynamics were partially observed by a rising income tax and expenses. On a year over year, the basis net income rose 12 percent, bolstered by the robust performance of our capital market business. Both are wealth and asset management businesses also contributed to the uptick, with AUNs climbing 15 percent and 20 percent in US dollars respectively.
Speaker Change: Your phone please make sure your mute function is turned off to allow your signal to reach our equipment.
Operator: We will 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. The first question comes from Ernesto Habiondo with Bank of America. Please go ahead.
Speaker Change: 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.
Speaker Change: 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.
Alejandro Perez-Reyes: This positive business dynamics were partially observed by a drop in treasurer results and an uptick in income tax expenses.
Alejandro Perez-Reyes: Next slide. Now we will analyze Credicorp at a consolidated basis, starting with favorable balance sheet and pricing dynamics, which draws a strong NII. On a quarter or a quarter basis, on the asset side, loan balances resume growth, driven primarily by wholesale lending and to a lesser extent by retail loans. These are now coupled with favorable pricing, helped us maintain resilient yields on interest-earning assets. And the liability side are funding advantage in low cost deposits, was further boosted by inflows from pension fund withdrawals.
Ernesto <unk>: The first question comes from Ernesto <unk> with Bank of America. Please go ahead.
Ernesto Habiondo: Thank you. Good morning, Gianfranco, Alejandro, Francesca, Cesar. Good morning to the rest of the team, and thanks for the opportunity to ask questions.
Speaker Change: Thank you hi, good morning, Don Conkle Alejandro Kirker.
Speaker Change: Uh huh.
Speaker Change: And because of our poker game.
Speaker Change: And then last question.
Ernesto Habiondo: My first question will be on Ivanko and the microfinance industry in Peru and also in Colombia. How do you see the credit appetite and the indebtedness in the sector? Are you detecting any positive signals on the evolution of the client? Thank you very much.
Speaker Change: My first question will be on the wrong call armed in micro finance industry Guru and also well in Colombia.
Speaker Change: How do you who crave appetite on the decremental the cracker.
Speaker Change: I would correct parking fine Oh, loosen overclock warm.
Alejandro Perez-Reyes: In this context, the funding cost fell 12 basis points outpacing the reduction in the yield on interest-earning assets, which fell six basis points. On a year over year basis, asset growth was driven by long growth in the SME business and middle market segment of DCP. The investment portfolio balance also rose, driven by our ongoing strategy to increase the duration of interest-earning assets. These dynamics led the yield on interest-earning assets to rise 25 basis points, despite a drop in interest rate. On the funding side, the aforementioned increase in low cost deposits and a downward re-rate of our time-to-posit balance led the funding cost to contract.
Speaker Change: But there will be an effect.
Speaker Change: I would look for the economy.
Speaker Change: Or do you continue to have the same level.
Speaker Change: Our earnings.
Speaker Change: Quality.
Speaker Change: And then on Columbia Bank.
Speaker Change: Burnt cargo.
Gianfranco Ferrari: Yeah, good morning Ernesto. As I mentioned in my opening remarks, we still don't feel comfortable where we stand in our portfolio in terms of risk in the portfolio we have at Vivanco. As a matter of fact, we have been tightening our credit policies over the last quarter, I would say, because we still don't see any improvement in that business. Having said that, if we have a longer view, going back, the microfinance industry in Peru is a very relevant industry.
Speaker Change: Yes, good morning, a restaurant.
Speaker Change: As I mentioned in my opening remarks.
Speaker Change: We still don't feel comfortable where we stand in our.
Speaker Change: In our portfolio in terms of risk in the portfolio. We have asked me Michael is the fact that we are tightening our credit policies over the last I would say that.
Alejandro Perez-Reyes: This evolution was partially observed by an increase in wholesale funding cost, which was impacted by a BCP bond issue and earlier this year.
Speaker Change: Last quarter I would say.
Speaker Change: Because we still don't see any.
Improvement in that business.
Alejandro Perez-Reyes: These dynamics led the cost of funding to drop five basis points.
Speaker Change: But having said that if we take a longer a longer.
Alejandro Perez-Reyes: Next slide, please. Our risk-adjusted name remained resilient, supported by growth in NII, which, alongside a rise in fee income and effects transactions, boosted core income. On a quarter over quarter basis, name increased three basis points to stand at 6.33% where risk-adjusted name stood at 4.4%. If we isolated the effect of our reversal in a linear provisions last quarter, risk-adjusted name was flat. Core income increased 3.9% bolstered by NII and strong growth in both fee level and effect transaction volumes, where the main drivers were BCP and critical capital. At BCP, growth in the fee level was fueled mainly by YAPI and by core transactional services. Income from effects transactions grew 31.1% bolstered by transactions through digital channels and wholesale banks.
Speaker Change: Our vision going back maybe I'll go in the Microfinance industry, there is a very relevant industry.
Gianfranco Ferrari: Vivanco, Edificado at the beginning, and then Vivanco when we merged the two institutions. The President-elect has provided very sound and nice results. Going forward, we are still very positive about the... I would say it's too soon to tell that we're seeing any improvements, both in the market and within our risk capabilities. Colombia is a different story. Colombia has a much smaller role to play. Having said that, and taking into account that the Colombian environment overall for the banking system is much more complicated than the one in Peru, I would say that MIRABU in Colombia today has a clearer path in terms of what has been achieved and what has been done over the last six months.
Speaker Change: <unk> if you got at the beginning and doesn't mean wankel when we merged the two institutions.
Speaker Change: It has provided very sound on nice results and going forward, we are still very positive on the Wyndham.
Speaker Change: The mantle of the business, but it's too I would say, it's too soon to tell that.
Speaker Change: <unk> seen any improvements both in the market and within our risk.
Speaker Change: Risk capabilities.
Speaker Change: Colombia is a different story in Colombia are much smaller blades.
Speaker Change: Having said that.
Speaker Change: Having having an indoor or beginning to occur.
Speaker Change: The Columbia environment overall for the banking system is much more complicated than the one in Peru, I would say the Columbia.
Alejandro Perez-Reyes: Credicorp Ltd., Corbisneses, Dropa, Solity, Inc.
Alejandro Perez-Reyes: Resolving. On a year-over-year basis, Niem rose 31 basis points, while risk-adjusted Niem fell in 31 basis points. Dropa's another income was given by BCP due to the same dynamics in quarter-overboard.
Speaker Change: So in Colombia.
Today are clearer in terms of what has been.
Speaker Change: Being done over the last six months.
Alejandro Perez-Reyes: Next slide, please. Let's look at the dynamics for asset quality. It is important to note that the diversity of BCP's loan portfolio provides a natural advantage in offering the context of a challenging credit cycle for the Peruvian financial system.
Ernesto Habiondo: Thank you very much, and just a second question on your 24 guidance, I think in your second quarter press release. Thank you for your time.
Speaker Change: Oh perfect. Thank you very much.
Speaker Change: A quick question.
Tony: Ah Tony for Garden, Oh, cleaning or cooking quieter.
Tony: <unk>.
Speaker Change: Your line.
Ernesto Habiondo: I'm going to go ahead and open it up for questions. I have a few questions for you, and I want to know if there are other questions that you have. I know that you are indicating to expect solid growth in other income and disciplined management of operating expenses. Can you elaborate on your expectations for other income? Is this coming because of gap pay? Is this showing in fees or in other income?
How do we grow another income.
Speaker Change: Good point, none of them are now called Green Bancorp, So controllable ladenburg good cushion for other income mhm coming because of a drop.
Alejandro Perez-Reyes: Mivanco, on the other hand, is more exposed given that it is concentrated in micro-business clients who are more vulnerable. Cost of risk-adjusted credit corp is 2.3%. Underlying risk, which isolated the effects of the results of a linear provision, was flat quarter-over-quarter. Let's go through underlying risk dynamics. Provisions grow 2.4 quarter-over-quarter, driven by Mivanco, and highly offset by BCP. At Mivanco, growth in provisions was triggered by a deterioration in the payment performance of all the advantages, which was concentrated in high-ticket loans, higher rights, and a weakening in the payment capacity of vulnerable clients.
Alejandro Pérez Reyes: I just wanted to understand a little bit more about that. And then, in terms of expenses, I don't know if you would be willing to postpone some not-urgent projects that you have been working on. I know that you have a lot of projects that you have been working on. And I'm going to ask you to make a comment on that. I know that you have a lot of projects that you have been working on.
Speaker Change:
Speaker Change: Or in other income we wanted to understand a little bit more on that.
Speaker Change: Okay.
Speaker Change: So I don't know if we would be willing to postpone some not Oregon progress.
Green outbreak under control.
Alejandro Pérez Reyes: Alejandro? Sure. Going back to the fees, we are expecting the strong fees that we're seeing to continue throughout the year. Part of the expenses we've done over the last few years to increase our transactional capabilities, transactional capabilities, and this is paying out in these fees that we're seeing right now. We expect it to continue. We're expecting both at the IAPE level and also in the core business at BCP to increase. And so we should see strong numbers along those lines going forward.
Speaker Change: Sure.
Speaker Change: Going forward fees, we are expecting the strong fees that we're seeing to continue.
Speaker Change: Along the year.
Alejandro Perez-Reyes: Within BCP, the contraction in provisions was driven by consumer, which reported a drop in new refinancing and by mortgage where an improvement in payment capacity was observed as clients leveraged increased. This evolution was partially offset by growth in provisions, in wholesale due to a base effect and in credit cards due to further deterioration of payment performance among vulnerable clients. For a year-over-year basis, provisions rose 35.9% mainly through BCP and Mivanco. Within BCP, provisions grew primarily through SME-PME and reflected weakening in the payment capacity over indebted clients and deterioration in the payment performance of all the advantages. Additionally, provisions increased in credit cards via the same dynamics in quarter-over-quarter. At Mivanco, the other provisions was driven by the same dynamics of those in quarter-over-quarter.
Speaker Change: Part of the expenses, we've done over the last few years actually to increase our transactional capabilities transactional capabilities.
Speaker Change: This is paying out in these fees that we're seeing right now we expect it to continue we are expecting both at the yard level also the core business at BCP to increase.
Speaker Change: So we should see strong numbers, along those lines going forward.
Alejandro Pérez Reyes: As for expenses... Ram. [inaudible] We're controlling the cost of income. We are always looking into opportunities to be as efficient as possible, but we are not currently considering cutting any particular project that we are in at the time. So, yeah, as long as we control for the cost-to-income ratio, we... We are OK with that. Still, as I said, we are always looking at expenses. And that's the reason why I said that our guidance was to be on the lower side of the cost-to-income guidance. And that is because we tend to choose some things. But there are smaller things, not necessarily the big projects that we're working on.
Speaker Change: For expenses.
Speaker Change:
Speaker Change: Where we're controlling the cost to income we are always looking into opportunities to be.
Speaker Change: As efficient as possible, but we are not currently considering got in any particular.
Speaker Change: The project that we are in at the time.
Speaker Change: So yeah as long as we as we control for the cost to income.
Speaker Change: We were.
Speaker Change: We are okay currently with with that still as I said, we are always looking at expenses and that's the reason why I say that are asking to be on the lower side.
Alejandro Perez-Reyes: Next slide, please. Moving on to non-performing loans. On a quarter-over-quarter basis, growth in non-performing loans was led by Mivanco and partially offset by BCP. At Mivanco, MPL growth was driven by anaptic in the linkancy in government program loans, which have high coverage levels and by growth in the linkancy in high-ticket loans among vulnerable clients affected by concurrent adverse events in 2023. Within BCP, the drop in MPLs reflected an improvement within SME-PME, where honoring processes for government loans are underway.
Speaker Change: The cost.
Speaker Change: Cost to income guidance and that is because we tend to choose some things, but they are smaller theme park necessarily.
Speaker Change: Big projects that we're working on.
Ernesto Habiondo: Thank you very much, Alejandro and Gianfranco.
Speaker Change: Oh I've heard of clinker in my part of Hangzhou uncle.
Speaker Change: Thank you.
Renato Meloni: The next question comes from Renato Meloni with Atomal Research. Please go ahead.
The next question comes from run out on their learning with Auto model Research. Please go ahead.
Alejandro Perez-Reyes: This evolution was partially offset by anaptic in MPLs in credit cards and mortgages among vulnerable clients who are highly leveraged and lack stable employment. The deterioration in credit cards was concentrated in vintagees originated in the first half of 2023. In this context, the MPL coverage ratio for total loans is 295%, or 98.2% if we isolate the impact of government loans.
Speaker Change: Okay.
Renato Meloni: Good morning, everyone. Thank you for the opportunity to ask questions. Just to start a follow-up on Mibanko, during your initial remarks, you said that you were doing a better assessment of the situation in the upcoming quarters. So I wonder if you could offer some more color on what this assessment is and maybe offer some other magnitude in extra provisions that you might have to incur, and if that could materially impact the guidance. And then the second question here is just on what you think is the driver for the increasing low-cost deposits and if you expect that to increase during the rest of the year. Thank you.
Speaker Change: Hi, Good morning, everyone. Thank you for your funding it pertains to two last questions just to start with a follow up here on <unk>.
Speaker Change: During our initial remarks, you said that you were doing a better assessment of the situation and the upcoming Parker's Simon.
Speaker Change: So I'm wondering if you could offer some more color on what this assessment is and maybe offer some other magnitude E. Extra provisions that you might have to incur and if that could materially impact the guidance and then a second question here just on the.
Alejandro Perez-Reyes: We have learned lessons from this cycle and have taken measures to recover asset quality faster. At Mivanco, a significant and growing numbers of clients have seen their income shrink, which has led to higher indebtedness and weakened payments. In this context, we have stepped up restrictions at the re-nation level, as we strengthen monitoring, collections, and reprogramming evaluation process. While we are performing better than experienced, we are still adjusting our risk management capabilities.
Speaker Change: What do you think is the driver for the increase in low cost deposits and you should expect that too to increase during the rest of the year. Thank you.
Cesar Rios: I'll ask Cesar to take the first question, and I'll take the second.
Speaker Change: Yes.
Speaker Change: First half two over there to take the first question and I'll take the second one.
Cesar Rios: Okay, thank you. I would like to... To remind you of something that Gianfranco mentioned to us, one is that the general context of the market has been very challenging, particularly for the microsegments. I didn't say that we are doing a very thorough analysis of our internal capabilities and performance, and I would like to shed a little bit more light on what we mean by a thorough assessment. We are reviewing the entire process. Checking, for example, our monitoring capabilities. How granular are they?
Speaker Change: Thank you.
Alejandro Perez-Reyes: At VCP, the deterioration is concentrated in the vulnerable segment within individual clients. Despite most respiratory in-nation and over-temporary-grade facilities, exposure and deterioration continues to persist in this segment. We are taking more aggressive action by selectively tightening origination guidelines in vulnerable individuals since May, and by offering a minimum term rescheduling to both individuals and SMAP clients in this second half of 2024.
Speaker Change: I would like to.
Speaker Change: To remind something down the jumping angle has mentioned.
Speaker Change: Why is that.
Speaker Change: General context of the market has been very challenging, particularly for the micro segment.
Speaker Change: You can say that we are.
Speaker Change: Doing a beta totaled.
Speaker Change: <unk> or our internal capabilities and performance I would like to lead a little bit more light about what do we mean for a thorough assessment. We are reviewing the entire process checking for example, our monitoring capabilities how granular that out there what are we more neutral we are reviewing.
Alejandro Perez-Reyes: Let's look at this. We will review the evolution of efficiency on an accumulated basis to isolate the impact of seasonal effects. Operating expenses grew 9.2 percent, driven primarily by core businesses at VCP and disruptive initiatives at the Credicorp level. Core businesses at VCP fuel growth in expenses to anaptic in IT expenses related to move to attract talent to feel vacant positions and specialize the adult talent and increase use of the cloud as clients become more digital and transaction levels increase. Expenses for disruptive initiatives at the critical level rose 29.2 percent. The most significant expenditures were in Japan, Tempo and Kulki, which together accounted for 66 percent of this semester's disruptive expenses.
Cesar Rios: What are we monitoring? We are reviewing the performance and calibration of our models. How effectively are we combining our on-the-field capabilities with the modeling central system that compounds the hybrid model that we are convinced is the right one? But how finely tuned are these?
Speaker Change: The perform moniker in collaboration with our models how effectively are we combined.
Speaker Change: On the field capabilities will be more of a leading central system that compounds. The hybrid model that we are convinced is the right one but how finely June on lease and we are also reviewing cultural aspect that has been probably affected during a long period.
Cesar Rios: And we are also reviewing... Cultural Aztec, which has probably been affected during a long period of a tough market, affecting the behavior of the clients and probably even our internal RMs. So, to summarise everything, we are reviewing every conceivable aspect of the credit process to be sure that even under very tough market circumstances, we are performing at the best possible level, and we are finding opportunities to improve along the lines that I have already mentioned, and the expectation is to have a clear picture in a quarter or so.
Speaker Change: Off a tough market affecting the behavior of the cloud in some probably eating our intermodal.
Speaker Change: So a summarizing able to seeing way I'm reviewing every conceivable aspect of a creative process to be sure that even under a very tough market circumstances, we ask them for me.
Alejandro Perez-Reyes: Finally, anaptic in operating income and accelerating operating expenses led the efficiency ratio to drop 19 basis points to stand up 44.3 percent, year to date in the first half of 2024. Despite this, this quarter of 2020 stood at 16.2 percent, driven by strong results in our universal banking, insurance, and investment management and advisory businesses. Meanwhile, the ROE for the semester was 17.2 percent.
Speaker Change: At the best possible level, and we are finding opportunities to improve all along the lines that I already mentioned and the expectation is to have a clear picture.
Speaker Change: A quarter or so.
Speaker Change: Okay.
Gianfranco Ferrari: I'll compliment Cesar on his answer. That goes beyond risk management at Nivanko, and we've talked about it in previous calls. I would say MiBanco, like most of the microfinance institutions in the traditional business, has been 99% focused on lending. And the whole microfinance industry has a strategic weakness, but at the same opportunity. In terms of gathering retail deposits, transactional deposits, and improving the income business, those are two levers that, obviously, will take time, but strategically is something that we're working on at MiBanco. That won't help in the short term, for sure.
Speaker Change: I'll I'll compliment.
Speaker Change: Her.
Speaker Change: That goes beyond the risk management that rebound calls we've talked about it in previous calls.
Alejandro Perez-Reyes: These results are testament to our resilience and ability to adapt to challenges in circumstances.
Alejandro Perez-Reyes: Now, I will move on to our updated guidance. Next slide, please. As previously stated, a GDP growth expectation remains unchanged at around 3 percent. Regarding long growth, despite the recent pick-up in wholesale lending, our still cautious approach to re-nation in our retail banking and microfinance segments has led us to revive our guidance on total long growth, measured in average daily balances to the 1-3 percent range. Our name is expected to stand by the end of the year towards the upper end of our guidance, which is between 6 percent and 6.4 percent.
Speaker Change: I will tell you the Banco like most of them microfinance institutions.
Speaker Change: In the traditional business has been 99% focused in lending.
Speaker Change: And the poll micro finance industry has on strategic.
Speaker Change: Weakness, but at the same opportunity.
Speaker Change: In terms of gathering.
Speaker Change: Retail deposits are transaction on deposits and.
Speaker Change: Improving the fee income business those are two levers that obviously will take time.
Speaker Change: Strategically is something that we're working on would be rankle.
Gianfranco Ferrari: In the short term, what Cesar just mentioned, but on the longer path, we do see that MiBanco has an opportunity to actually start and improve those two sources of income. Going to your second question, the answer is quite direct and easy.
Speaker Change: Want help in the short term for sure in the short term is what Susan just mentioned, but in the longer path, we do see that rebound going on.
Alejandro Perez-Reyes: We expect cost of risk to situate around the upper end of our guidance, which is between two and two and a half percent. The credit cycle has proven to be longer and tougher than expected, although we are confident on the effectiveness of the credit measures taken, the stress is likely to linger in the individuals and microfinance segments for the better part of the year. We achieve solid efficiency levels as we continue to invest in our disruptive initiatives.
Susan: The opportunity to.
Susan: Actually start basically and improve those two sources of income.
Susan: Going to your second question.
Speaker Change: The answer is why a direct and easy is we've been investing in transactional capabilities for I would say I don't know 15 years.
Gianfranco Ferrari: We've been investing in transactional capabilities for, I would say, I don't know, 15 years. And obviously, that doesn't pay off when interest rates are low, in environments like the ones we've been living in for the last 24 months, 18 months, whatever. And we will continue to invest. So a few years ago, it was heavily investing in distribution, the physical distribution capabilities. Today, it's heavily investing in digital distribution capabilities, and a clear example, and the most successful one so far, has been Yapay.
Alejandro Perez-Reyes: We are controlling growth in expenses at our core businesses to offset the aforementioned headwind and expect to close the year with an efficiency ratio near the lower end of our guidance, which is between 4.6 and 4. Even the aforementioned dynamics and the betters are anticipated evolution of both our fiends and insurance and the right in results, where we affirm our ROE guidance for 2024 at around 17%.
Speaker Change: And obviously that doesn't pay off when interest rates are low.
Speaker Change: Base.
Speaker Change: In an environment like the ones, we've been living with for the loss.
Speaker Change: 24 months 18 months whatever.
Speaker Change: And we will continue to invest so so a few years ago. It was a heavily investing in.
Operator: With these comments, we can move to the Q&A session. We will now begin the question and answer session. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you have connected to the call using the HD web phone on your computer, please use the keypad on your computer screen. If you are using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment.
Speaker Change: The distribution physical distribution capabilities today is heavily investing in digital distribution capabilities.
Speaker Change: A couple of them.
Speaker Change: Most successful one so far has been yesterday, but that's the word.
Gianfranco Ferrari: But if you recall, a few years ago, we started a strategy called War on Cash. That's exactly what's happening; we're not only improving in terms of market share, but the non-cash market has been growing steadily over the last few years.
Speaker Change: <unk>.
Speaker Change: If you recall a few years ago, we started a surgical or gosh.
Speaker Change: That's exactly what's happening.
Speaker Change: Not only.
Speaker Change: Improving market share but.
Speaker Change: The noncash market has been growing steadily over the last few years.
Operator: We will 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.
Renato Meloni: Thank you. That's clear.
Speaker Change: Thank you that's clear.
Speaker Change: Oh.
Speaker Change: Yes.
Brian Flores: The next question comes from Brian Flores with Citi. Please go ahead.
Speaker Change: The next question comes from Brian Flores with Citi. Please go ahead.
Brian Flores: Hi Tim, thank you very much for the opportunity to ask questions. I have a question about the asset.
Brian Flores: Hi, Deane.
Brian Flores: Thank you very much for the protein plus questions I have a question on the uplink.
Ernesto Habiando: The first question comes from Ernesto Habiando with Bank of America. Please go ahead. Thank you. Hi, good morning. I'm Franco Alejandro, Francesca, and good morning to the rest of the team. Thanks for the opportunity to ask questions.
Francesca Raffo: As you mentioned, you achieved break-even. I wanted to understand a bit how you anticipate this going forward, the 23% quarterly-over-quarter expansion in revenues. Do you think this is sustainable, something that you already have within your budget? I also wanted to ask and confirm, now that the investments have been mostly done on the technology side and the capability side, as you were mentioning on the transaction side, if going forward this is purely, let's say, profit, or only, let's say, the largest part of it from the revenue side will translate to profit directly on this one. Thank you.
Speaker Change: As you mentioned you achieved breakeven.
Brian Flores: I wanted to understand how.
Or would you envision this going forward.
Speaker Change: 22% quarter over quarter expansion or revenues do you think this is a sustainable something that you already have within your budget I also wanted to loss can confirm.
John Franco Ferrari: My first question will be on Ivanco and the microfinance industry in Peru and also in Colombia. How you see the great appetite and the indebtedness in the sector, are you detecting any positive signals on the evolution of the client, given that there will be an expected better outlook for the economy, or you continue to see the same levels of deterioration, the asset quality. Any color on this will be very good. Good morning, Ernesto.
Speaker Change: All of the investments have been.
Speaker Change: Mostly done for so on.
Speaker Change: And the technology side and the gasoline.
Finally, as you were mentioning on the transactional side.
Speaker Change: Going forward. This is purely a let's say profit or on let's say the largest part of it.
Speaker Change: On the revenue side will translate into profits.
Speaker Change: Profits directly right.
Speaker Change: On this one thank you.
Francesca Raffo: Francesca?
Speaker Change: Francesco.
Francesca Raffo: So, in addition to the primary revenue streams for IAPE, as mentioned before, flows and payments, and also beginning the lending business, what I think is very strong for IAPE in the future is that the monthly active users continue to grow at a fast pace, and also the level of transactions that they have is continually increasing. If you look at a year-to-year, quarter-to-quarter comparison, the active transactional level was 25 transactions per customer; now it's 40, with a growth in customers as well.
Speaker Change: So in addition to the Lake primary revenue streams.
Speaker Change: As I mentioned before.
Speaker Change: Payments and also in <unk>.
John Franco Ferrari: As I mentioned in my opening remarks, we still don't feel comfortable where we stand in our, in terms of risk, in the portfolio we have at Ivanco. As a matter of fact, we are tightening our credit policies over the last, I would say, the last quarter, I would say, because we still don't see any improvement in that business. But I said that if we take a longer vision, going back to Ivanco, and the microfinance industry in Peru is a very relevant industry, Ivanco edificated at the beginning and then Ivanco when we merged the two institutions, it has provided very sound and nice results. And going forward, we are still very positive on the fundamentals of the business. But I would say it's too soon to tell that we're seeing any improvements both in the market and within our risk capabilities.
Speaker Change: Turning to the lending business.
Speaker Change: Hey.
Speaker Change: What I think.
Speaker Change: <unk> is very strong for the ethane in the future is that the monthly active users continue to grow at a faster rate and also the level of transactions that they have is continually increasing you know got a year to year and wanted to work in comparison.
Speaker Change: I think a transactional level with 25 transactions per customer and how we can support with our growth in customers as well so.
Francesca Raffo: So, the current pace of growth, I don't see it slowing down in the revenue streams that we know, bill payments, and floating. But what we are going to see is a difference in percentage in the relative growth rate of new businesses. We mentioned lending; we're growing fast on lending in terms of not still creating a large balance but really increasing the pace at which we lend to all YAPE customers. We believe that 50% of the YAPE base should be able to have a lending product.
Speaker Change: Yeah.
Speaker Change: Some growth I don't see it slowing down on day.
Speaker Change: The revenue stream that we know the old name names on them.
Speaker Change: But what we are going to see is a different <unk> percentage in the relative growth rate of new businesses. We mentioned lending we are growing fast on lending in terms of not still creating a large part of that that really drive a increments.
Speaker Change: Being the pace at which we then and for all the other customers, we believe that 50% of the F&B.
John Franco Ferrari: Colombia is a different story. Colombia is a much smaller play, having said that and having taken into account that the Colombian environment overall, for the banking system, is much more complicated than the one in Peru. I would say that the Colombian, the Miva in Colombia has today a clear impact in terms of what has been... Being done over the last six months.
Ernesto Habiando: Now, perfect. Thank you very much.
Speaker Change #100: They should be able to have a lending problems.
Francesca Raffo: And also, new revenue streams in terms of foreign exchange, remittances, which are highly fee-based businesses, are also growing, still small, but also growing. And finally, newer business models, which are marketplaces. We are currently having a lot of promotions, and a lot of transactions around Yapay, which gives us an optimistic view in terms of creating a new business.
And are there any level and also the new revenue streams in terms of foreign exchange.
Speaker Change #102: It remains unchanged.
Heidi: Heidi <unk> our fee based businesses are also growing.
Speaker Change #102: Small, but also growing I'm finally nowhere.
Speaker Change #106: The business models, which are a marketplace. We are currently having a lot of promotions I noticed transactions around yeah.
Alejandro Perez-Reyes: And just a second question in your 24 guidance. I think in your second quarter press release, you were indicating to expect solid growth in other income and discipline management of operating expenses. So can you elaborate on your expectations for other income? Is this coming because of Gapet? Is this showing in fees or in other income? I just wanted to understand a little bit more on that. And then in terms of expenses, I don't know if you would be willing to postpone some not urgent projects to maintain up on the control.
Speaker Change #104: Which gives us.
Speaker Change #104: Not anything new in terms of creating.
Gianfranco Ferrari: Maybe just to complement Francesca's answer. On your last comment, don't get me wrong; we are not going to cut investments in technology. If we see an opportunity, we will continue investing in developing new features for our clients. That brings me to highlighting the meeting we are going to have on September 26, in which we are going to be deep diving into JPEI and other tech initiatives or disruptive initiatives, which, by the way, I invite you all.
Francesca Raffo: Tito Labarta
Speaker Change #104: Yeah, maybe just to complement Francesco Hunter.
Speaker Change #104: Barry.
Speaker Change #105: <unk> talked about before bear in mind that.
Speaker Change #105: Happens with this.
Speaker Change #107: Startups of actually is that they have a J curve in terms of income and therefore profits. So that's what's happening.
Speaker Change #108: Building on what Francesco mentioned.
Speaker Change #109: Just on your last comment don't get me wrong, we're not gonna.
Speaker Change #110: Investments in technology, if we see an opportunity we will continue investing in developing.
Alejandro Perez-Reyes: Alejandro? Sure. Going forward to the fees, we are expecting the strong fees that we're seeing to continue along the year. Part of the expenses we've done over the last few years actually to increase our trans-translationality capabilities and this is paying out in these fees that we're seeing right now. We're expecting to continue. We're expecting both at the YAPL level, also at the core business at BCP to increase. And so we should see strong numbers along those lines going forward.
Speaker Change #110: New features for our clients and that's something I'm.
Speaker Change #110: That brings me to highlight in the meeting we're going to have in September.
Speaker Change #110: And which we are.
Speaker Change #110: Deep diving in.
Speaker Change #110: The Tech initiative disruptive initiatives, which by the way I invite you all.
Gianfranco Ferrari: Perfect. If I just make a quick follow-up on your comment on Francesca's. As you mentioned, you see a big opportunity in terms of lending via JAPE. But I also know from your presentation that you want to be cautious, right, in the consumer segment. So how do we reconcile this, let's say, more timid appetite for consumer and credit cards with perhaps a better optionality here with JAPE to originate lending via the app? Thank you.
Speaker Change #111: Perfect. If I just make a quick follow up on your comment on some chance because.
Speaker Change #112: And as you mentioned you see a big opportunity in terms of lending via <unk>.
Speaker Change #113: I also know and from your presentation that you want to be cautious on the consumer segment. So how do we reconcile these let's say give me appetite on consumer and credit cards.
Alejandro Perez-Reyes: As for expenses, we're controlling the cost to income. We are always looking into opportunities to be as efficient as possible. But we are not currently considering cutting any particular project that we are in at the time. As long as we control for the cost to income, we are okay, currently with that. Still, as I said, we are always looking at expenses and that's the reason why I said that our expenses to be on the lower side of the cost to income guidance. And that is because we tend to choose some things, but there are smaller things, not necessarily the big projects that we're working on.
Speaker Change #114: And perhaps a better.
Speaker Change #115: Optionality here, if we drop it to originate lending yeah, we have.
Speaker Change #116: Yep Yep. Thank you.
Gianfranco Ferrari: Yes, you mentioned the keyword, optionality. The Peruvian market is, the Lenguor market actually is, I don't know, 75% informal. So in the past, the whole financial system had two barriers to successfully lending to those segments. One was distribution costs, and the other one was data. Obviously, by disbursing through the app, the distribution cost is marginally zero. And the models we are building, the risk models, I mean, we're building through the data we've gathered over the last few years in YAPI have helped us in developing these new models, and so far, the performance of those, as Francesca mentioned, basically short-term loans, has been very good. So we'll go step-by-step, but we see a very big opportunity there.
Speaker Change #117: Yes, the keyword you mentioned on the keyword optionality.
Speaker Change #118: The Peruvian market.
Brian Flores: Thank you.
Speaker Change #119: <unk> is the labor market is actually leased I don't know, 75% in pharma market. So in the past, but the whole financial system.
Speaker Change #120: True barriers.
Speaker Change #121: Successfully lend into those segments, one is distributional costs and the other one is data.
Speaker Change #121: Obviously by the by disbursing through through the App distribution cost is marginally marginally zero.
Alejandro Perez-Reyes: Now, Alejandro, thank you very much, Alejandro and Alejandro. Thank you.
Speaker Change #121: The models, we are building the risk models I mean, we're building.
Renato Meloni: Next question comes from Renado Nelloni with Atomon Research. Please go ahead. Hi, good morning, everyone. Thank you for the opportunity to ask questions. Just to start the follow-up here on MeetBuncle, do you initially notice you said that you were doing a better assessment of the situation, the upcoming partners? So I wonder if you could offer a similar caller and what the assessment is and maybe offer some other magnitude, the extra provisions that you might have to incur.
Speaker Change #121: Through the data we've gathered over the last few years and yet.
Renato Meloni: And if that could materially impact the guidance. And then the second question here is just on the, what do you think is the driver for the increase in low cost deposits and if you expect that to increase during the rest of the year? Thank you. Yeah, I'll answer to answer there to take the first question and I'll take the second. Okay, thank you. I would like to...
Speaker Change #121: It has helped us.
Speaker Change #121: Developing these new models and so far the performance of our furniture commercial basically short term loans have been very good. So we will go step by step, but we see a very large opportunity there.
Speaker Change #122: Super Thank you.
Tito Labarta: The next question comes from Tito Labarta of Goldman Sachs. Please go ahead.
Tito <unk>: Our next question comes from Tito <unk> with Goldman Sachs. Please go ahead.
Tito Labarta: Hi, good morning. Thank you for the call and taking my question. First question, just on the revision in the loan growth, right, a little bit lower, you know, despite, you know, 3% GDP growth. Is this primarily related to Mibanco? I mean, what do you need to see here for loan growth to really improve from here? Maybe we're starting there.
Tito <unk>: Hi, Good morning, Thank you for the call and taking my question.
Tito <unk>: First question just on the revision in the loan growth a little bit lower despite.
Speaker Change #124: All three.
Speaker Change #125: 3% GDP growth.
Speaker Change #126: Primarily related to me Banco I mean, what do you what do you need to see here for loan growth.
Cesar Rio: To remind something that Gianfranco has mentioned us, one is the general context of the market has been very challenging, particularly for a micro segment. For example, our monitoring capabilities, how granular are they, what are we monitor? We are reviewing the performance and calibration of our models, how effectively are we combined our on the field capabilities with the modeling central system that compounds the hybrid model that we are convinced are the right one, but how finally tuned are these?
Speaker Change #127: To to really improve from here, maybe starting there.
Alejandro Pérez Reyes: Sure. Cool.
Speaker Change #127: Sure.
Speaker Change #127: So.
Alejandro Pérez Reyes: The revision is a reflection. Not only of what we are expecting but what has already happened during the year, the region is on average daily balances and the first half of the year we have only grown in point, 2% in the average daily balances. So that makes it harder to expect the 3% to 5% growth that we had. So we are expecting growth to pick up in the second half of the year, it's just that it's going to be in specific areas, not necessarily as fast as we were expecting, but as the economy continues to grow, we've seen rates coming down, we see there's no inflation, there's investment in the private sector, and a lot of other leading indicators that show that the growth is becoming more widespread, but at the beginning it was very much in the primary sector, so you didn't feel it necessarily on the loan book, but now it's becoming more widespread, and we see a lot of different metrics that show that, we included in the presentation the transactions with our credit and debit cards, that is a leading indicator and it's moving.
Speaker Change #128: The revision is a reflection.
Speaker Change #128: Not only of what we're thinking about what has already happened during the year. There Asia is on average daily balances.
Speaker Change #128: First half of the year, we have only grown in point.
Speaker Change #128: 2%.
Speaker Change #128: The average daily balances so that makes it harder to expect the 3% to 5% growth that we that we had.
Speaker Change #128: Earlier before so we are expecting growth to pick up in the second half of the year is yes that is gonna be in specific areas and not necessarily as fast as we were expecting but.
The economy continues to grow.
Speaker Change #129: We've seen we're seeing rates coming down we see theres no inflation. There is the investments on the private sector and a lot of other leading indicators that show that the growth is becoming more widespread because at the beginning it was very much on the marine sector. So you didn't feel it necessarily on the loan.
Cesar Rio: And we are also reviewing cultural aspects that has been probably affected during a long period of a tough market affecting the behavior of the clients and probably even our internal arrangements. So summarizing everything, we are reviewing every conceivable aspect of the credit process to be sure that even under very tough market circumstances we are performing at the best possible level and we are finding opportunities to improve all along the lines that are already mentioned.
Speaker Change #129: Loan book, but now, it's becoming more widespread and we see a lot of different.
Speaker Change #129: Metrics that show that including we included in the presentation the transactions with our credit.
Speaker Change #129: Credit and debit cards that is a leading indicator is moving.
Alejandro Pérez Reyes: We see stronger in different industries, and also energy consumption is growing at a more robust pace. So we see a lot of different indicators that show that the economy should continue to improve and be more widespread, and that has an impact on the economy, the growth of the portfolio for the second half of the year, which moves up to the 1-3% on average daily balances. But again, we are going to be selective in taking on specific risks because the credit cycle is still not over.
Speaker Change #129: Stronger in.
Speaker Change #129: Different.
Industries also energy John is growing.
Cesar Rio: And the expectation is to have a clear picture in a quarter or so. How complement as a social sensor, the goes beyond risk management at Mibanko and we've talked about it in previous calls. I would say Mibanko and like most of the microfinance institutions in the traditional business has been 99% focused in lending. And the whole microfinance industry has a strategic weakness but at the same opportunity in terms of gathering retail deposits, a transaction on deposits and improving the income business.
Speaker Change #129: More robust space. So we see a lot of different indicators that show us that the economy should continue to improve and be more widespread.
Any impact on.
Speaker Change #129: The growth of the portfolio for a second half of the year that moves up to the one 3% on daily.
Speaker Change #129: Daily balances, but again, where we are.
Speaker Change #130: Can I be selective.
Speaker Change #130: Specific risks because the credit cycle is still not over.
Tito Labarta: Okay, thanks for that. And I guess, just on Ibanco again, to see the growth pick up there, I mean, why is it so weak if the economy seems to be improving? Is this just because of the informality of those types of clients that's not necessarily captured in like the formal macro figures? Just to understand why the continued weakness there? Like, what would it take for that to really begin to improve?
bankole: Okay. Thanks for that and I guess, just finally bankole again.
Speaker Change #132: Good to see that growth pick up there I mean why why.
Speaker Change #133: So we get the economy seems to be improving is it just because of the informality of those types of clients that not necessarily captured in like a formal macro figures just to understand why the continued weakness there like what would it take for that to really begin to improve.
Cesar Rio: Those are two levers that obviously will take time but strategically is something that we're working at Mibanko that won't help in the short term for sure. The short term is what Susa just mentioned, but in the longer path we do see that Mibanko had an opportunity to actually start basically and improve those two sources of income. Going to your second question, the answer is quite direct and easy, is we've been investing in transactional capabilities for I would say, I don't know, 15 years.
Speaker Change #133: Yeah.
Speaker Change #133: Maybe.
Speaker Change #134: Structural long term data for sure.
Speaker Change #135: Short term answer.
Speaker Change #136: The microfinance industry is up.
Speaker Change #136: More volatile.
Speaker Change #136: Hi.
Speaker Change #136: Within our portfolio.
Speaker Change #136: Business has the highest volatility.
Speaker Change #137: Bearing in mind that the micro finance sector has been hit.
Cesar Rio: And obviously that doesn't pay off when interest rates are low, but it pays in environments like the ones we've been living in for the last 24 months or whatever. And we will continue to do invest. So a few years ago it was heavily investing in physical distribution capabilities. Today it's heavily investing in digital distribution capabilities. A clear example, and the most successful one so far, it has been yummy but if you recall a few years ago we started a strategy called Worm Cash. That's exactly what's happening. Not only improving terms of market share, but the non-cash market has been growing steadily over the last few years.
Gianfranco Ferrari: Thank you. Maybe... more on, Since COVID, like constantly, in Peru, I mean, first COVID, then the terrible government we had, then the social unrest, and so it hit for, I don't know, a period of three years or four years, something like that. And that's on the one hand. On the other hand, this GDP growth. It takes time to trickle down to those segments, so it's a matter of time, but we do not have clarity as of today on when that time is coming to benefit that portfolio.
Since call it like constantly in Peru, I mean, so first call it than that.
Speaker Change #138: Well government rehab than the social unrest.
Speaker Change #139: Or is it like for a period of three years or four years something like that.
Cesar Rio: Thank you, that's clear.
Speaker Change #139: On the other hand, this GDP growth.
Speaker Change #139: It takes time to throughput.
Speaker Change #140: To those segments. So it's a matter of if I'm right I would tell you somewhere over time, but we do more clarity as of today and when is that when you start time coming to benefit that portfolio.
Alejandro Pérez Reyes: Maybe just to add, the growth in the first half of the year has been very tight in primary sectors and hasn't necessarily come necessarily with a big increase in..., hiring in companies. All of the indexes are in the positive side, including higher growth expected for the next quarter. So we are seeing more positive news, but it still has to go from the primary sector to the full economy.
Speaker Change #141: Maybe you have to complement the growth in the first half of the year has been very types of primary sectors.
Speaker Change #141: It hasn't gotten necessarily with a big increase in.
Speaker Change #141: Hiring in companies now the good news is that today when you look at the Central Bank expectations Survey.
Speaker Change #141: All of the indexes are in the positive side, including the higher than expected for the next quarter. So we are seeing more positive news about steel it has to learn from the primary sector to a full economy.
Brian Flores: The next question comes from Brian Flores with City. Please go ahead. Hi, Dean, thank you very much for this week's last questions. I have a question. As you mentioned, you achieved great even. I wanted to understand a bit. How do you envision this going forward? The 23% quarter of the quarter expansion or revenues, do you think it is sustainable? Something that you already have within your budget? I also wanted to ask and confirm.
Tito Labarta: Okay, now that makes sense, that's very helpful. And I guess on the cost of risk, they're, you know... You said that the higher end of the range this quarter was a bit higher, the first quarter was a bit lower, but you had some reversals there, and you're sort of well above historical levels. So just to put that in context, do you think that remains a bit elevated, maybe because of Mibanko, thinking into 2025 a little bit, or can that improve going forward, sort of significantly, maybe back to historical levels eventually?
Speaker Change #142: Yep, Okay now that makes sense that's very helpful.
Speaker Change #143: Just one follow up.
Speaker Change #144: And I guess on the cost of risk there.
Speaker Change #145: I mean, you said that the higher end of the range I mean, this quarter was a bit higher first quarter was a bit lower but you had some reversals. There do you think this and you're sort of well above historical levels. So just to put that into context. I mean, do you think that remain a bit elevated mainly because of me bonkers like thinking into 2025, a little better than that.
Brian Flores: Now that the investments have been mostly done for on the technology side and the capability side, as you were mentioned on the transfer. If going forward, this is purely a let's say profit or only let's say largest part of it that from the revenue side will translate into a profit directly on this one.
Speaker Change #145: Peru going forward sort of significantly maybe back to historical levels eventually.
Speaker Change #145: Yeah.
Alejandro Pérez Reyes: The Federal says we are expecting to be in the range on the upper side of the range. So that certainly means that we are expecting some improvement during this year. Still, not necessarily this year going back to pre-all of these conditions that Gianfranco mentioned, you know, to two levels pre-recession and COVID, et cetera. So this year, I think it's more of a transition year where we'll see a decrease, but a slow decrease throughout the year. That will probably help us get into the range, but very much on the upper side. And hopefully, 2025 is a year where it normalizes.
Speaker Change #146: The figures I'll say, we are expecting to be in a range on the upper side of the range. So that certainly means that we are expecting some improvement.
Francesca Paine: Thank you. So in addition to today's primary revenue streams for YAPA has mentioned before, flow improvements and also in the beginning to the lending business, what I think is very strong for YAPA in the future is that the multi-active users continue to grow at a fast pace. And also the level of transactions that they have is continually increasing. You look at a year-to-year quarter to quarter expansion at a transactional level with 25 transactions per customer.
Franco: During this year still not necessarily these year going back to pre all of these conditions are then Franco mentioned.
Franco: Two levels.
Franco: Pre recession, and Bobby it et cetera. So this year I think it's more of a transitional year, where we will see a decrease but slow decrease along the year.
Franco: Brian to help us get into the range about very much on the operator side and hopefully 2020, a year, where it normalizes maybe.
Gianfranco Ferrari: Regarding the cost of risk, there are two forces going in opposite directions. One is that if we stand still with the current portfolio, the cost of risk should be lower going forward. But on the other hand, the retail portfolio overall is growing at a faster pace than the wholesale portfolio, and that portfolio has a higher cost of risk. In fact, what we manage is risk-adjusted NIM. We expect, overall, the risk-adjusted NIM to improve going forward.
Brian Flores: Maybe complementing that.
Speaker Change #148: Regarding cost of risk there like two forces going in opposite directions. One is that it will stand still with our current portfolio cost of risk should be lower going forward, but on the other hand, the retail portfolio overall is growing at a faster based on the wholesale portfolio and that portfolio has a higher cost of risk.
Francesca Paine: Now it's 40 with a growth in customers as well. So the current pace of growth, I don't see it slowing down on the revenue streams that we know, the repayments and clothing. But what we are going to see is a different importance in the relative growth rate of new businesses. We mentioned lending. We're growing fast on lending in terms of not still creating a large balance but really trying to incrementing the pace at which we lend for all YAPA customers.
Speaker Change #148: Actually what we manage is risk adjusted NIM we.
Speaker Change #148: We expect overall the risk adjusted NIM to improve going forward.
Tito Labarta: Okay, that's helpful. Thanks, Gianfranco and Alejandro. Thanks for watching, and don't forget to like, share, and subscribe to our channel.
Speaker Change #149: Okay. That's helpful. Thanks, So again frankel and Alejandro.
Speaker Change #148: Yeah.
Yuri Fernandes: The next question comes from Eric Ito with Bradesco BBI. Please go ahead. Eric, your line is live. The next question comes from Yuri Fernandes with J.P. Morgan. Please go ahead.
Speaker Change #150: The next question comes from Eric <unk> with <unk>. Please go ahead.
Francesca Paine: We believe that 50% of the YAPA base should be able to have a lending product available. And also the new revenue streams in terms of foreign exchange, remittances which are highly a fee-based business are also growing at a still small but also growing. And finally the newer business models which are marketplace. We are currently having a lot of promotions, a lot of transactions around YAPA which gives us an optimistic view in terms of creating a new business.
Speaker Change #150: Okay.
Eric Your line is live.
Speaker Change #150: Yeah.
Speaker Change #150: Okay.
Speaker Change #151: Our next question comes from Yuri Fernandes with JP Morgan. Please go ahead.
Yuri Fernandes: I have a follow-up question on IAPE, on the breakeven and the loan growth. Usually, in Peru, you're provisioning for unexpected losses, and we see a good growth in disbursements here. If you can share, maybe the balances would help us, but I guess we'll give you the number of IAPE loans, like 700,000 disbursements. My question here on the breakeven is the following.
Yuri Fernandes: Thank you and good morning, everyone I have a follow up on the offer on the breakeven and then loan growth right like you usually do.
Speaker Change #153: Who knew provisioning and expected losses, and we see a good growth on disbursements year. If you can share maybe the balances will help us, but I guess it would give you the number the number of you have been long right like 700000.
Francesca Paine: Yes, maybe just to compliment Francesca's answer, we've talked about it before. Bear in mind that what happens with this company's startups, actually, is that they have a J-curve in terms of income and therefore profits. So that's what's happening building over Francesca mentioned. Just on your last comment, don't get me wrong, we're not going to cut investments in technology. If we see an opportunity, we will continue investing in developing new features for our clients.
Gianfranco Ferrari: Are you building provisions ahead, like basically this is penalizing your expenses? And even on expenses, is the total expenses line for IAPE that you have in the table reflecting provisions? So, trying to understand the breakeven, basically, if this is the breakeven, considering the credit and the cost of credit, like the potential expected losses, or not yet, like you are not including provisions in those lines? Thank you very much, guys. No.
Speaker Change #154: My question here on the breakeven the following how are you provisioning for these other beauty provisions.
Speaker Change #155: Like basically do you spend all IV your expenses and even on expenses. This is there still some expenses line for your RP that you'll have the table, reflecting provisions. So I'm trying to understand the breakeven basically if this is the breakeven considering the credits and the cost of credits like the potential.
Speaker Change #156: Expected losses are not yet like you are not including off provisions in those lines. Thanks very much guys.
Gianfranco Ferrari: What you see, what you saw, sorry, in the presentation is the overall cost of, as if IAPE were a business unit by itself. So it has all of the costs, including provisioning. The YAPE loans, the bulk of the portfolio of YAPE is very short-term loans. So we provide whatever is needed, but actually, it's the NPLs, the ones that generate provisions. The delinquency is directly related to provisioning because the loans are very, very short-term. The typical method of provisioning doesn't apply to the YAPE portfolio.
Francesca Paine: And that's something that brings me to highlighting the meeting we're going to have in September 26th in which we are going to be deep diving in the same initiative for the disruptive initiatives, which by the way, I invite you all. Perfect. If I just make a quick follow up on your comment on Francesca's, as you were mentioned, you see a bit of opportunity in terms of lending via the app. I also know from your presentation that you want to be cautious, right, on the consumer segment.
Speaker Change #157: What you see what.
Speaker Change #156: What you saw sorry, the reservation is.
Speaker Change #157: Overall cost.
Speaker Change #156: Yep.
Speaker Change #158: Our business our business unit by itself.
Speaker Change #156: Sorry.
Speaker Change #156: All of our costs, including provision and.
Speaker Change #156: Yep.
Speaker Change #156: The bulk of our portfolio of ERP is very short term loans. So we provision wherever it is needed but actually with npls.
Speaker Change #156: The ones that generate provisions and delinquencies.
Speaker Change #159: The revenue run rate.
Francesca Paine: So how do we reconcile these let's say more teaming appetites on consumer and credit cards with perhaps a better optionality here with which app to originate lending via the app. Thank you. Yes, the key word, you mentioned the key word optionality. The brewed market is the labor market actually, I don't know, 35% informal market. So in the past, the whole financial system has soon barriers or successfully lending to those segments. One is distribution costs and the other one is data.
Speaker Change #159: Related to provisioning because since the loans have very very short tenor.
Speaker Change #159: Hum.
Speaker Change #159: The typical way of provisioning that doesn't apply to the <unk> portfolio.
Speaker Change #159: Okay now, let's switch gears.
Yuri Fernandes: Thank you. It was great to be here, Gianfranco.
Speaker Change #159: Yes.
Gianfranco Ferrari: The actual performance of the portfolio is much clearer and faster revealed in this kind of portfolio because you have a very short maturity, so in a very short period of time, you have a perfect profile of the payment expectation, and you can provision based on that.
Speaker Change #159: Sorry, sorry go ahead Ted.
Ted: The actual performance of the portfolio is much clear faster revealed in this time of portfolio because you have very short maturities.
Ted: Very short period of time, you have a perfect a profile of the painting expectation and your competition based on that.
Yuri Fernandes: Thank you, guys. And just to follow up on these loans, why are you more confident with FIAPA loans than Nibanco? I know it's different, the nature of the business, but given all the questions, everything we're seeing with Nibanco... Like, why are you confident that you can grow only after Alonso? What is different here?
Speaker Change #161: No. Thank you guys and then just a follow up on these loss why are you more confident with shopping malls than any Banca I know, it's different than nature of the business, but even with all the questions and congrats on the bond.
Francesca Paine: Obviously, by dispersing through the app, the distribution cost is marginally zero. And the models we are building, the risk models, I mean, we're building through the data we've gathered over the last few years in YAPI, have helped us in developing these new models and so far the performance of those and as Francesca mentioned, basically short-term loans have been very good. So we'll go step by step but we see a very large opportunity there. Superb here.
Francesca Paine: Thank you.
Like why why are you confident that you can grow on the loss what is different here.
Gianfranco Ferrari: A few reasons, Yuri, and we've discussed this issue before, because MiBanko goes to micro businesses, and YAPE goes to consumer lending. You can argue, and I may agree, that at those levels, at those segments, it's the same pocket, or the pocket gets mixed.
Speaker Change #162: A few reasons.
Speaker Change #163: Discuss it about.
Speaker Change #164: This issue before because you've got the top me.
I propose to micro businesses.
Speaker Change #165: Yep It goes to consumer lending you cannot do.
Speaker Change #166: May I agree that those levels are those segments is the same pocket.
Speaker Change #167: It gets it gets mixed.
Gianfranco Ferrari: But one reason is that. The other reason is that the model, that YAPE is completely built on risk models and digital capabilities, the acquisition cost is much, much lower than the acquisition cost at MiBanko. And maybe the last one, which is the most important one, is tenor. MiBanko's duration is around 13 months, YAPE's portfolio is around one month, so it's very different. Thank you.
Speaker Change #168: One reason is that right.
Speaker Change #168: The other reason is that the model yeah.
Tito Labarta: The next question comes from Tito Labarta with Goldman Sachs. Please go ahead. Hi, good morning. Thank you for the call and taking my question. First question, just on the revision in the loan growth, I had a little bit lower, you know, so I'll, you know, 3% GDP growth. Is this primarily related to me, Banco? I mean, what do you need to see here for long growth to really improve from here? Maybe we're starting here.
Speaker Change #168: <unk> completely bill.
Speaker Change #169: Built on our risk models and digital capabilities. The acquisition cost is much much lower than the acquisition costs.
Speaker Change #169: Meanwhile, go and maybe the last one which is the most important one we said our.
Speaker Change #169: Banquo's.
Speaker Change #169: Our duration is around 13 months.
Yeah.
Speaker Change #169: Paul apologies about 13 months Yelp as Warner brothers around one month. So this is very very different.
Tito Labarta: Sure. So the revision is a reflection. Not only of what we're expecting about what has already happened during the year, the region is on average daily basis, and the first half of the year, we've only grown in point 2% in the average daily balances. So, that makes it harder to expect the 3% to 5% growth that we had earlier before. So, we are expecting growth to pick up in the second half of the year, is that it's going to be in specific areas, not necessarily as fast as we're expecting, but as the economic continues to grow, we've seen rates coming down, we've seen there's no inflation, there's investment on the private sector, and a lot of other leading indicators that show that the growth is becoming more widespread, but at the beginning it was very much on the primary sector, so you didn't feel it necessarily on the long book.
Sanjay: No go ahead Sanjay.
Francesca Raffo: To add to the previous question and to this one, one of the things we're also trying in IAPE is innovation around the disbursement channel, the collection channel, and product innovation. It's very different to give working capital than a very small 20 day or 45 day loan. There's space for all of these products. So what we need to find is the niches around that.
Speaker Change #171: And I think to the previous question until this one one of the things were.
Sanjay: So.
Speaker Change #172: Try Yafei E.
Speaker Change #173: Asia around disbursement channel collection of channel and product innovation, and it's very different to give our working capital and a very small 20 day or 45 days. So this is the space for all of these products kind of what we need to find these initiatives around that.
Tito Labarta: But now it's becoming more widespread, and we see a lot of different metrics that show that, including we included in the presentation, the transactions with our credit and debit cards, that is a leading indicator that is moving stronger and in different industries. Also, energy consumption is growing as a more robust pace. So, we see a lot of different indicators that show us that the economy should continue to improve and be more widespread, and that's an impact on the growth of the portfolio for a second half of the year, that moves up to the 1% or 3% on another daily balances.
Speaker Change #172: Okay.
Yuri Fernandes: Super clear, everybody. And congrats on IAPE. It is great. When I see the chart of your RPAC and your cost to serve, it's pretty nice.
Speaker Change #174: Most of the Berkeley.
Speaker Change #175: Body and congrats on the assay.
Speaker Change #176: It is great like when I see the sharp fall in Europe.
Speaker Change #177: In your cost of service I know, it's pretty nicely just transfer to check in like the potential questions.
Speaker Change #178: Questions here, Thank you very much.
Speaker Change #177: Okay.
Eric Ito: The next question comes from Eric Ito with Braidco BBI. Please go ahead. Hi guys, good morning.
Eric Ito: So just trying to check the potential questions here. Thank you very much. The next question comes from Eric Ito with Braidco BBI. Please go ahead. Hi guys, good morning. Can you hear me? Thanks for taking my question here. I have one question regarding loan growth.
Eric <unk>: Our next question comes from Eric <unk> with <unk>. Please go ahead, hi, guys. Good morning can you hear me.
Speaker Change #180: Yes, that's perfect.
Eric <unk>: Thanks for taking the taking my question here I have one question regarding loan growth you mentioned that.
Speaker Change #181: Economy should continue to improve we have rates coming down and low inflation next year. So just want to I just want to get a bit of color for 2025.
Speaker Change #182: If you can give me give us some numbers on loan growth expectations for next year, and maybe give us a break it down for microfinance between the segments retail.
Speaker Change #183: And wholesale thank you.
Speaker Change #182: Yeah.
Gianfranco Ferrari: Just to be clear, we don't provide guidance on 2025 until February of 2025. If we go back to 2024, which is what we can discuss, that's so... Peru's main driver of growth over the last two decades has been private investment. Therefore, loan growth has been highly correlated to private investment, and even though, as we mentioned before, we expect it to grow 3% this year, we still don't see relevant private investment or private projects that account for investment.
Speaker Change #182: Okay.
Speaker Change #184: And just to be clear, we don't provide guidance on 2025 until.
Speaker Change #184: February or February of 2025.
Speaker Change #184: But if we go back to 2034, which is what we can discuss basically.
Tito Labarta: But again, we are going to be selective in specific risks, because the credit cycle is still not over. Okay, thanks for that. And I guess just on the bunker again, you have to see the growth pick up there. I mean, why is so weak if the economy seems to be improving? Is this just because of the informality of those types of clients that's not necessarily captured in like the formal macro figures, just to understand why they continued weakness there.
Speaker Change #184: So.
Fayrouz: Fayrouz main driver for growth over the last two decades has been private investment.
Fayrouz: Sure.
Fayrouz: Therefore loan growth has been highly correlated to private investment.
Speaker Change #186: Even though we are as we mentioned before we expect to grow 3%. This year, we will still don't see in.
Speaker Change #186: Relevant private investment or private projects.
Tito Labarta: Like what would it take for that to really begin to improve? Yeah, Tito, maybe a more structural answer and then a more short term answer. The microfinance industry is more volatile within our portfolio, the business and the highest volatility. And bear in mind that the microfinance sector has been hit since COVID, like constantly, improve. I mean, so first COVID, then the terrible government we had, then the social unrest, so it's been hit like for, I don't know, a period of three years or four years or something like that.
Speaker Change #187: Foreign investment.
Gianfranco Ferrari: Having said that, and again I want to stress out that we don't provide guidance for 2025, what we expect is that next year, maybe by the end of this year, some private investment should pick up because there's activity in the new brownfield and greenfield projects in the mining sector. Alejandro mentioned the port of Shanghai, which has already been financed, but there's a huge... The new airport is going to be inaugurated by year-end and so on, so we are positive about growth, portfolio growth, I mean, but it's going to be for next year, not maybe the last part of this year, but mostly next year.
Speaker Change #187: Said that and again I want to stress that we don't provide guidance for 2025, what we expect is that next year, maybe by the end of this year some private.
Speaker Change #187: Whereas investment should pick up because there's there's activity in the new brownfield and greenfield projects in the mining sector.
Speaker Change #187: The confirmation of the port of Shanghai, which has already been financed but there's some huge.
Speaker Change #187: Collateral positive impact the airport is going to be the new airports are going to be integrated by year end is hard and so we.
Tito Labarta: And the other hand, this GDP growth, it takes time to free call down to those segments. So it's a matter of, I would say it's a matter of time, but we do not have clarity as of today. And when is that, when is that time coming to benefit that portfolio? Maybe just to compliment the growth in the first half of the year has been very tight to primary sectors and hasn't come necessarily with a big increase in hiring in companies.
Speaker Change #188: We are positive on.
Speaker Change #189: Go for it.
Speaker Change #190: Portfolio growth I mean, but it's going to be for next year maybe.
Speaker Change #190: Quarter of this year, but mostly next year.
Alejandro Pérez Reyes: Maybe I'll just add that if you look...
Speaker Change #191: Maybe I'll just add that.
Alejandro Pérez Reyes: Even though private investment is a driver and it should be going forward, there's also a big push from the government for the private-public concessions, and one important one is this peripheric beltway that has been assigned for 3.4 billion dollars, which is also something that could generate some dynamism. So, we are seeing more things going on, but still, private investment is not necessarily online. Okay, thank you. Just a follow-up.
Speaker Change #191: Even though private is a driver and it should be.
Speaker Change #191: Going forward, there's the spread there is also a big.
Speaker Change #191: Bush from government for the private public.
Speaker Change #191: Concessions.
Speaker Change #191: One important one is these very fair to build wave that has been assigned.
Tito Labarta: Now, the good news is that today when you look at the Central Bank expectation service, all of the indexes are in the positive side, including the hiring expected for the next quarter. So we are seeing more positive news, but still it has to go from the primary sector to the full economy.
Speaker Change #191: For $3 $4 billion, which is also something that could generate some dynamism. So we.
Speaker Change #191: We are seeing more themes going on steel the private investment it doesn't necessarily.
Speaker Change #191: Online.
Speaker Change #191: As of now.
Speaker Change #192: Okay. Thank you just a follow up if I may what's the level of a sustainable ROE you guys. Thank you.
Tito Labarta: Yeah, okay, now that makes sense, that's really helpful. And I guess on the cost of risk there, I mean, you said that the higher end of the range, I mean, this quarter was a bit higher, first quarter was a bit lower, but you had some reversals there. Do you think this, and you're sort of well above historical level? So just to put that in the context, I mean, do you think that remains a bit elevated, maybe because of me, Banco, like thinking into 2012.
Speaker Change #193: The one four for the bank.
Eric Ito: Yeah, what we've mentioned, what we've been saying for the last three or four years, is 18%.
Speaker Change #194: Yeah, what we've mentioned.
Speaker Change #195: We've been measuring for the last three or four years.
Speaker Change #196: It's 18%.
Speaker Change #197: Okay. Thank you.
Speaker Change #197: Yeah.
Gianfranco Ferrari: The next question comes from Andres Soto with Santander. Please go ahead.
Speaker Change #197: Our next question comes from Andres Soto with Santander. Please go ahead.
Tito Labarta: 25, a little bit, or can that, you know, improve going forward sort of significantly, maybe back to historical levels eventually? Yeah, well, the first thing I'll say is we are expecting to be in range on the upper side of the range. So that certainly means that we are expecting some improvement during this year, still not necessarily this year going back to pre all of these conditions that Gianfranco mentioned. You know, to two levels, pre recession and COVID, et cetera.
Speaker Change #197: Okay.
Andres Soto: My name is Gianfranco Antin. Thank you for the presentation. My first question is regarding your long-term outlook vis-à-vis. Are you considering the possibility of distributing additional dividends in the second half of the year as you used to do before COVID?
Complains on Franklin team. Thank you for the presentation. My first question is regarding <unk>.
Speaker Change #197: Sure.
Speaker Change #197: Long run outlook be choppy.
Speaker Change #198: With a level on the petition potential for extraordinary dividends whenever you look at your capitalization.
Speaker Change #199: It is 12.
Speaker Change #198: <unk> percent for me.
Speaker Change #200: BCP on close to 17%.
Speaker Change #198: Paul.
Speaker Change #201: Bulk significantly higher than what you have to say above target on where you expect this to continue to improve are you considering.
Tito Labarta: So this year, I think it's more of a transition year, where we'll see a decrease, but slow decrease along the year, probably help us get into the range, but very much on the upper side, and hopefully 20, 20, 20, 50 a year with normalize. And maybe complimenting that regarding cost of risk, there are like two forces going in opposite directions. One is that if we stand still with a current portfolio, cost of risk should be lower going forward.
Stability will continue to improve on loan growth.
Speaker Change #202: Going to pick up dramatically. So are you considering the possibility of tissue is gonna be shocked at the banks in the second half of the year.
Speaker Change #203: As you used to do before coffee.
Gianfranco Ferrari: Before COVID,
Speaker Change #203: Yes.
Speaker Change #203: [laughter].
Andres Soto: Thank you very much. No, go ahead, go ahead.
Speaker Change #204: Hello again.
Speaker Change #204: Yes.
Speaker Change #204: No go ahead go ahead.
No you know frankly, but you can't.
Speaker Change #204: Alright, great.
Speaker Change #204: Topics.
Tito Labarta: But on the other hand, the retail portfolio overall is growing at a faster pace than the wholesale portfolio, and that portfolio has a higher cost of risk. Actually, what we manage is risk of just a name. We expect overall the risk of just a name to improve going forward. Okay, that's helpful. Thanks, Gianfranco.
Speaker Change #204: Where are we considering just work off here and yes, we are.
Haven't decided anything but we're gonna theory.
Speaker Change #205: Makes total sense.
Andres Soto: Thank you very much. My second question is regarding YAPA loans. The $700,000 disbursement caught my attention. I would like to understand if this is still only single installment loans, or are you already doing multi-installment loans? If you can give us any color on what the breakdown between both of them is and any feedback that you have regarding the preliminary potential of this, you know, Francesca just mentioned 50% of the API users should be eligible to get loans.
Speaker Change #205: Perfect. Thank you.
Speaker Change #206: Now my second question is regarding actually to yucca loans.
Speaker Change #207: You know that that's something that's been 100000 disbursements caught my attention I would like to understand is this a steel only a single installment loans or are you already doing more.
Andres Soto: So, I would also like to understand out of that how many are already clients at BTP or any other credit card subsidiary and which would be sort of incremental growth for the franchise. Currently, we disbursed a little over 300,000 short-term loans per month in IAPE. Around 90% of that is still a month old, between 15 days and 29 days in terms of cost. Derm. And we have for second-time and third-time customers a longer term meaning
Tito Labarta: And I know. The next question comes from Ericito with Bridgeco BBI. Please go ahead. Eric, your line is live. Our next question comes from Yuri Fernandez with JP Morgan. Please go ahead. Thank you. And good morning, everyone. I have a follow up on the app on the breakeven and the long growth, right? Like usually. You provisioning unexpected losses, and we see a good growth on this person here. If you can share maybe the balances will help us, but I guess we give the number.
Speaker Change #208: Multi installment loan Sun.
Speaker Change #209: If you can give us any color on what is the breakdown between both of them on.
Speaker Change #209: Any.
Feedback that you have regarding the preliminary potential. This you know Francesca mentioned.
Speaker Change #210: 50% of younger users.
Speaker Change #211: Be eligible to get loans, so I would like to understand also.
Speaker Change #211: Out about how many are already our clients.
Tito Labarta: The number of yapa loans, right, like 700,000. This person. My question here on the breakeven is the following, how are you provisioning for this? Are you building provisions ahead? Like basically, this is penalizing your expenses. And even on expenses is the total expenses line for yapa that you have in the table, reflecting provisions. Transcendence in the breakeven, basically, if this is the breakeven, considering the credit and the cost of credit, like the potential expected losses are not yet likely.
Speaker Change #211: B or any other credit card subsidiary and which will be sort.
Speaker Change #211: Sort of incremental growth, Florida franchise.
Speaker Change #212: Yeah. So currently we disbursed around over a little over 300000 loans short term loans for Monte yesterday.
Around 90% of that is steel.
Speaker Change #212: Mhm.
Speaker Change #212: Between 15 days on 90 days in terms of.
Speaker Change #212: Tom.
Speaker Change #212: And we have.
Speaker Change #213: Four seconds.
Speaker Change #213: And the time customers longer term longer term, meaning two months and three months. So its still early on and what we are actually looking at is a mount on repayment site. So it's very early on for that.
Tito Labarta: You are not including provisions in those lines. Thanks very much, guys. What you see, what you saw in the presentation is overall cost of, as if yapa were a business unit by itself. So it has all of the costs including provisioning. Yappel Loss, the bulk of the portfolio of Yappé is very short-term loss. So we provision whatever is needed, but actually it's the NPLs, the ones that generate provisions. The link was directly related to provisioning because since the loans are very short-tenor, the typical way of provisioning doesn't apply to the Yappé portfolio.
Francesca Raffo: What we are seeing is that the customer base is very repetitive. So there are a lot of customers that are coming back for the short-term loans. And we want to still understand how we can penetrate the larger base of the 12 million customers for IAPE. So the 50% that I mentioned is our goal, our North Star goal, saying that what we want to do is actually be able to lend to half of IAPE's customer base. Because if you've seen Peru's numbers, loan growth in terms of the number of people has been very dominant in the past, I don't know, 10 years. But it hasn't been a real growth path.
Speaker Change #213: What we are seeing is that the.
Speaker Change #214: Pardon me.
Speaker Change #215: He's a very repetitive. So there is a lot of customers that are coming back for those short term loans and.
Speaker Change #216: And we want to steal and understand how we can penetrate the larger base of the 12 million customers for Yodlee.
Speaker Change #216: So the 50% that I mentioned is our goal our nonstop gold team that we what we want to do is actually be able to lend to half of the <unk> customer base.
Speaker Change #216: If you seen peruse numbers loan growth in terms of number of people has been very disciplined in knowing the fact that I don't know 10 years it hasn't been.
Speaker Change #216: Our real growth path.
Tito Labarta: So the actual performance of the portfolio is much clearer and faster revealed in this kind of portfolio because you have very short maturity. So in a very short period of time you have a perfect profile of the payment expectation and you can provision based on that. No, thank you guys. And just a follow-up on these loans. Why are you more confident with Yappel Loss? I know it's different than nature of the business, but given all the questions everything we're seeing on the bank, why are you confident that you can grow on Yappé Loss?
Speaker Change #216: Okay.
Speaker Change #216: Yeah.
Speaker Change #216: Yeah.
Speaker Change #216: Okay.
Francesca Raffo: Congratulations again on the results.
Speaker Change #216: Well congratulations again on the results.
Yeah.
Sergey Dubin: The next question comes from Sergey Dubin with HL. Please go ahead.
Speaker Change #217: Our next question comes from Sergey Dubin with H L. Please go ahead.
Sergey Dubin: Yes, hello. I have a question regarding the direction of your net interest margin in the context of your asset yields and funding costs. I see that asset yields and, you know, basically asset yields have expended. Your funding cost has also risen, but slower than asset yields, so your NIM has expended as well. But could you put it in context also of the interest rate trajectory, because it looks like, as you showed in the presentation, the... Thank you. How sustainable is that NIM expansion, given that you expect BCRP to cut rates to 5% by the end of the year? That's the first question.
Speaker Change #217: Yes Hello.
I had a question regarding.
Sergey Dubin: The direction of your net interest margin in the context of your asset yields and funding costs I see that.
Speaker Change #220: Both asset yields.
Speaker Change #221: Thank you Andy on the expanded.
Speaker Change #222: Funding cost is also rose, but slower than hasn't meal NIM has expanded as well.
Speaker Change #223: But could you put it in context also of the interest rate trajectory does it looks like.
Tito Labarta: What is different here? A few reasons, Yuri, and we've discussed about this issue before because you can talk. Nivaco goes to micro businesses, Yappé goes to consumer lending. You can use and I may agree that at those levels, at those segments is the same pocket or the pocket gets mixed, but one reason is different. The other reason is the model. Yappé is completely built on risk models and digital capabilities. The acquisition cost is much, much lower than the acquisition cost at Nivaco.
Tito Labarta: And maybe the last one, which is the most important one, is tenor. Nivaco's duration is around 13 months. Nivaco's portfolio is around 13 months. Yappé's portfolio is around one month, so it's very different. So to add, I think to the previous question and to this one, one of the things we're also trying in Yappé is innovation around this investment channel, collections channel and products innovation. It's very different to give a working loan capital and a very small 20 day or 45 day loan.
Andy: As we've shown in the presentation.
Speaker Change #225: Our bank has been cutting rates in June of 'twenty three so how.
Speaker Change #226: Are we able to achieve.
Speaker Change #226: Expansion.
Asset yields for so long after the rate cuts have begun number one and number two.
Speaker Change #227: How sustainable is that NIM expansion given that you expect.
Speaker Change #226: <unk>.
Speaker Change #228: 32, 5%, but out of the year, that's the first question.
Speaker Change #228: Sure.
Alejandro Pérez Reyes: Sure. So.
Speaker Change #228: So.
Alejandro Pérez Reyes: So far, we've been able to reprice loans due to the current risk situation, and at the same time, low-cost funding has been improving in an important way, and we've had returns from investments, and all of that has contributed to... our numbers and to the fact that we're expecting to be on the upper side of the. I'm going to make a general comment and then I'll comment specifically. If we were to do nothing, the sensitivity of our portfolio to changes in rates... a lot of assignments, basically a high basis point shift both in dollars and in soles, would be around 14 basis points in a year and around 20 in a three-year period.
Speaker Change #229: So far we've been able to two <unk>.
Speaker Change #229: Reprice loans due to the current risk situation and at the same time low cost funding has been.
Speaker Change #229: Improving in an important way and also we had returns from investments and all of that has contributed to.
Speaker Change #229: To our numbers and so the fact that we're expecting to be on the upper side of the page.
Speaker Change #230: I want to make a general comment and then I'll go and specifically if we were to do nothing the sensitivity of our portfolio to changes in rates.
Speaker Change #230: With a lot of us basically a basis point shift both in dollars and install it would be around 14 basis points in a year and a round 20 in a three year period, we mentioned a three year period because of the movement of the whole portfolio on the.
Alejandro Pérez Reyes: We measure it over a three-year period because of the movement of the whole portfolio and the durations. So that is in a case where you basically maintain the portfolio as it is during this changing rate. Of course, that's not the idea; we're moving more on to the retail side, and that should change the mix and allow us to maintain a resilient name in the foreseeable future.
Speaker Change #230: The durations so that is in the case, where you basically maintained their portfolio as it is.
Tito Labarta: So there's space for all of these products, so what we need to find is initiatives around that. I'm also very clear everybody and congrats on Yappé. It is great. Like when I see the shark off on your park and your costs to serve, it's pretty nice, so just trying to check it like the potential questions here. Thank you very much.
Speaker Change #230: During these changing rates of course, that's not the idea.
Speaker Change #231: Moving more onto the retail side.
Speaker Change #231: And that should change the mix and that allow us to maintain a resilient.
Speaker Change #232: I mean.
Speaker Change #232: For the foreseeable future.
Sergey Dubin: OK, just to clarify, because I want to make sure I understand this very clearly. So are you saying that?
Speaker Change #232: Okay.
Speaker Change #233: Quantify because I want to make sure I understand it very clearly.
Speaker Change #234: So are you saying that.
Ericito: The next question comes from Ericita with Bridgeco BBI. Please go ahead. Hi guys, good morning. Can you hear me? Yes, perfectly. Thanks for taking my question here. Have one question regarding loan growth. You mentioned that the economy should continue to improve. We have rates coming down, low inflation next year. So, just want to get a bit of color for 2025. If you can give us some numbers on loan growth expectations for next year. And maybe give us a breakdown for microfinance between the segments, retail and wholesale. Thank you.
Alejandro Pérez Reyes: Some portion of your loan book is not directly tied to the reference rate, and you price it more in a kind of rhythm. [inaudible] I would suppose that would be more in SME, PMA, and more high-risk segments. Is that right? Yes, that happened during the last year because of the change in risk conditions in the market. So all of our book is, of course, related to the base rate movement, but given the credit cycle that we've been through, we've been able to reprice some of our loans to the upside because of higher risk.
Speaker Change #235: Some portion of your loan book is not directly tied to reference rate and new pricing more.
Speaker Change #236: You know in a.
Speaker Change #236: Kind of like risk.
Speaker Change #236: Fashion, so it's not.
Speaker Change #237: Suppose that would be more on <unk> NAND and more high risk segments does that is that right. So these are yes.
Speaker Change #238: That's not what happened during the last year because of the change in risk conditions in the market. Okay. So so all of our book is of course related to base rate movement, but given the credit cycle, we've been through we've been able to reprice.
Speaker Change #238: Some of our loans because of higher risk.
Ericito: Just to be clear, we don't provide guidance on 2025 until I believe it's February of 2025. If we go back to 2024, which is what we can discuss, basically, so, Peru's main driver for growth over the last two decades has been private investment. Therefore, loan growth has been highly correlated to private investment. And even though we mentioned before, we respect to grow 3% this year, we still don't see relevant private investment or private projects for investment.
Speaker Change #238: In the cycle when that comes down over time that should also.
Speaker Change #238: Normalized more.
Alejandro Pérez Reyes: When that risk comes down over time, that should also normalize. OK, so that's fine. That's clear. And then the second part of my question was: Given the ongoing decline in reference rates, and then if you expect these rates to come down, that obviously suggests that you're gonna reprice your loans down, which means that you are. As the yields come down substantially, would you still be able to... Reprice your deposits or overall funding down more so that you can keep your NIM at least flat, or do you think there is some downside to NIM later in this year or maybe even next year?
Speaker Change #239: Okay. So that's fine that's clear and then the second part of my question was.
Speaker Change #240: Given the ongoing decline in our reference rate and then you can spend isn't it will come down so that obviously suggests that you're going to reprice your loans now which means that your.
Speaker Change #241: Asset yields will come down we promised somewhat.
Speaker Change #242: So would you still be able to.
I mean price.
Speaker Change #242: Deposits overall funding down more so that you can keep your NIM.
Speaker Change #243: You mean flat or do you think by some downside to NIM in later part of this year, maybe even next year.
Sergey Dubin: If we didn't change the composition of the portfolio over time, yes, there should be some pressure downwards on NIM because we already have a very high market share in low-cost deposits, and we have been repricing those, even though there might still be some repricing to be done when rates come down in time deposits, etc., but the effects aren't as big. Having said that, and we'll do that, of course, over time, but on the other hand, we are shifting the mix of the portfolio and moving into more retail, where you have a higher margin. So that mix is what makes us think that we'll be able to sustain these levels for longer.
Speaker Change #244: If if we didn't change the composition of the portfolio over time, yes, there should be some pressure on.
Ericito: We said that, and again, I want to stress out that we don't provide guidance for 2025. What we expect is that next year, maybe by the end of this year, some private investment should pick up because there's activity in the new brownfield and greenfield projects in the mining sector. Alejandro mentioned the port of Shanghai, which has already been financed, but there's a huge collateral positive impact. The airport is going to be the new airport is going to be integrated by year and so on.
Ericito: So, we are positive on growth for the growth, I mean, but it's going to be for next year, not maybe the core of this year, but mostly next year. Maybe I'll just add that even though private is a driver and it should be going forward, there's this project, there's also a big push from government for the private public concessions. And one important one is this very, very build way that has been assigned for 3.4 billion dollars, which is also something that could generate some dynamism.
On NIM, because we already have a very high market share in low cost deposits, we have been repricing those.
Speaker Change #244: Even though there might still be some some repricing to be done when rates come down in time deposits et cetera. The effects are our <unk>, having said that and we will do that of course over time, but on the other hand, we are shifting the mix of the portfolio and moving into more retail where you have a higher margin. So that's me.
Speaker Change #244: Is what makes us think that we will be able to sustain these levels for for longer.
Alejandro Pérez Reyes: Okay, and could you repeat your, yeah, so your sensitivity to, let's say, I don't know what it is, like 25 basis points in rate moves is 14 basis points in NIM, is that correct?
Speaker Change #245: Okay and could you repeat.
Speaker Change #246: Yeah. So your sensitivity to lets say I don't know, what like 25 basis points and rate moves is 14 basis in NIM.
Speaker Change #247: Is that correct.
Sergey Dubin: The calculation I gave is a 100 basis points parallel move, both in soles and dollars. That had an impact.
The the calculation I gave it.
Speaker Change #248: 100 basis points move parallel move both in soles and dollars.
Speaker Change #249: And impact and three years of around 20 basis points.
Alejandro Pérez Reyes: In three years, around 20 basis points, and in one year, around 14 basis points. That is with the portfolio without having any changes, you know, so that's basically taking the balance sheet as it is and going through that cycle of rates coming down. When we move the portfolio and we go a little bit more into retail, that's when we compensate for a part of it. Right.
Speaker Change #250: One year around 14 basis points that is with the portfolio without having any changes so that basically taking the balance sheet that it is.
I am going through a cycle of rates coming down.
Speaker Change #250: When we move the portfolio and we go a little bit more into retail that when we compensate a part of that.
Ericito: So, we are seeing more things going on. Still, the private investment is not necessarily online as of now. Okay, thank you. Just follow up if I may. What's the level of a sustainable ROE? You guys think is the one for the bank?
Sergey Dubin: Right. So that's a perfect segue into my next question.
Speaker Change #251: Right. So that's a perfect segue into my next question you've been you've been saying this line for like a long time that you guys are moving into retail and that should bring higher NIM, which is true but also very apparent now it's bringing high of cost against the wall.
Ericito: Yeah, what we've mentioned, what we've been measuring for the last 3 or 4 years is 18%. Thank you.
Sergey Dubin: You've been saying this line for like a long time that you guys are moving into retail, and it should bring higher MIM, which is true, but also, it's very apparent now that it's bringing higher costs of risk as well. And that's actually what it looks like to me, a lot of people here focused on Mibanko, but it's really your SME and PME segment within Credicorp that I think contributes most to your credit cost increase, just by the sheer size of your portfolio.
Speaker Change #250: And then thanks Ali well.
Speaker Change #252: And it looks like to me a lot of people here focused on Banco, but clearly your SME.
Segment within credit core, which I think contributes most to.
Andres Soto: Next question comes from Andre Soto with Santander. Please go ahead. Thank you for the presentation. My first question is regarding your long-old Alonso B.S.A.P, with a level and a potential for extraordinary dividends. When I look at your capitalization, it is 12% for B.C.P, and close to 17% for Ivanko, both significantly higher than what you have said at Stargate, and I expect this to continue to improve considering, you know, that the stability will continue to improve on long-old, you're not going to pick up dramatically.
Speaker Change #252: Credit cost increase.
Speaker Change #253: Question on the size of the portfolio.
Sergey Dubin: So my question there is: how are you, first of all, like, what exactly changed between Q1 and Q2, because I was under the impression that... Your credit costs were most vulnerable last year and expectations for El Nino, then El Nino happened, it wasn't as bad, you reversed some provisions, so it looked like things were actually improving, but then it's deteriorating again. So what has changed between Q1 and Q2 that you saw this deterioration?
Speaker Change #253: My question there is how.
How are you.
Speaker Change #254: First of all like what exactly changed between Q1 and Q2, because I was under the impression that.
Speaker Change #255: No credit costs were most vulnerable last year and expectations of El Nino than El Nino happens it wasn't as bad.
Speaker Change #256: There are some provisions so it looked like things were actually improving but then now.
Deteriorating again, so what has changed between Q1 and Q2 that you saw this deterioration.
Operator: I hope you enjoyed this video. I will see you in the next one. Bye.
Speaker Change #257: Well see.
Speaker Change #258: Well what we.
Sergey Dubin: Nothing has changed in the sense that the trend has been the same, but what has been a little bit of a surprise is that it was stronger than we expected beforehand. So the point is, we knew we were in a bad credit cycle. We were expecting it to start turning a little bit earlier in the year, and it's taken longer, but it's not necessarily changed in any way. Having said that, this is a cycle that is going on right now, and it will pass.
Speaker Change #259: Nothing that's changed in the sense that the trend has been the same what has been a little bit up as our brand is that it was stronger than we expected beforehand. So the point is when you were in a bad credit cycle, we were expecting it to start turning a little bit earlier in the year and its taken longer but it's not necessarily changed in any way.
Andres Soto: So are you considering the possibility of this within additional dividends in the second half of the year as you used to do before COVID? Yes. Laura, yes. Now go ahead, go ahead. No, you're pregnant. You want to get it all right? Go ahead. Are we considering? Yes, we're considering. Yes. We haven't decided anything, but yes, we're considering. Make sure to do first. Perfect. Thank you.
Speaker Change #259: Having said that this is.
Speaker Change #259: A cycle that is going on right now and it will pass and our strategy to move into retail at a more structural step downs.
Sergey Dubin: It's a more structural strategy that is not necessarily linked to the specific moment. So we're not going to rush into something today when we're still expecting the risk to be better. Strategically, we are moving more into retail.
Speaker Change #259: That is not necessarily linked to the specific moment. So we're not going to rush into something today, when we're still expecting that the risk to be sure.
Andres Soto: No, my second question is regarding actually to Yapalones. You know, the 700,000 disbursements caught my attention. I would like to understand, is this still only single storm and loans, or are you already doing multi-storm and loans? And if you can give us any color on what is the breakdown between both of them and any feedback that you have. Regarding the preliminary potential of this, you know, Francesca, I just mentioned 50% of Yapay users should be eligible to get loans, so I would like to understand also how many are already clients at BTP or any other critical subsidiary and which will be sort of incremental role for their conscious.
Speaker Change #259: Strategically we are moving more into the retail segment.
Speaker Change #259: Okay. So that.
Speaker Change #259: But that's the model.
Alejandro Pérez Reyes: There are a lot of people in the call.
Speaker Change #259: Yeah.
Speaker Change #260: Uh huh.
Speaker Change #261: There's a lot of people in the call what we can range with our IR team is a specific organization that we're going to as much detail as you as you.
Speaker Change #262: Got you okay.
Sergey Dubin: All right, that's fine. That's fine. Thanks.
Speaker Change #262: All right that's fine that's fine thanks, Greg.
Greg: Great. Thank you.
Carlos Gomez: The next question comes from Carlos Gomez with HSBC. Please go ahead.
The next question comes from Carlos Gomez with HSBC. Please go ahead.
Greg: Okay.
Carlos Gomez: Hello, thank you. First, thank you for the disclosure about NIMS sensitivity. That's very clear, and we appreciate that.
Carlos Gomez: Hello, Thank you.
Carlos Gomez: Thank you for the disclosure on the NIM sensitivity that that's very clear and we appreciate that.
Carlos Gomez: I have two different questions. One is about your international operations, given that Peru is taking time to take off. How do you see your operations in Bolivia, Colombia, and Chile? And how much are you willing to invest in your FinTech in Chile? And second, regarding investor remuneration, you mentioned the possibility of a dividend. I noticed that another company associated with the group has been very active in buybacks. Is that something that Credicorp would consider at some point, or will you stay with your policy of always sticking to dividends? Thank you.
Speaker Change #265: I had two different questions. One is about your international operations.
Given that well, but it was taking time to take off how do you see you're putting something in Bolivia, and Colombia and in Chile, and how much are you willing to invest in fintech.
Andres Soto: Yes, Francesca. Yes, so currently we we disburse around over a little over 300,000 loans, short and loans per month in Yapay, around 90% of that is still a month between 15 days and 29 days in terms of terms. And we have for second time and third time customers a longer term longer term meaning two months and three months. So it's still very early on and what we are actually looking at is amounts and repayment type.
And take on because I think the Investor Remunerations, you mentioned the possibility of.
Speaker Change #265: But I'll pass to Tony.
Speaker Change #265:
Speaker Change #266: Oh gosh.
Tony: It's been very active in buybacks you have time.
Speaker Change #267: And that's critical for complete them at some point or would you say we have a policy of always just sticking to defense.
Gianfranco Ferrari: Good morning Carlos, let me start with the second one. As of today, we are not evaluating any buyback opportunities, but as we mentioned before, the plan is to pay relevant and important dividends, the ordinary dividends we pay in May-June. This year, we raised that by 40%, I believe, and if there is... The portfolio growth is not there, or whatever; we'll pay an extraordinary dividend in the last quarter of the year. Those are the plans.
Speaker Change #267: Okay.
Speaker Change #267: Good morning, Carlos let me start with the second one.
Carlos Gomez: As of today, we were evaluating.
Carlos Gomez: The buyback opportunities.
Carlos Gomez: We've mentioned before with the plan.
Carlos Gomez: Two of.
Carlos Gomez: The relevant important dividend.
Andres Soto: So it's very early on for that. What we are seeing is that the customer base is very repetitive, so there is a lot of customers that are coming back for the short term loans and we want to still understand how we can penetrate the larger base of 12 million customers for Yapay. So the 50% that I mentioned is our goal, our North Star goal saying that what we want to do is actually be able to lend to half of Yapay's customer base because if you've seen a peruse numbers, long growth in terms of number of people has been very pertinent in the past 10 years, it hasn't been a real growth path.
Carlos Gomez: Ordinary dividend would be May June this year, we raised it by 40% I believe.
Carlos Gomez: And if there is.
Carlos Gomez: And the growth growth portfolio growth, if not there or whatever will play out.
Speaker Change #268: Extraordinary dividend.
Speaker Change #268: I would tell you the last quarter of the year that those are the players theres nothing formal yet we're evaluating that regarding your first question let me.
Gianfranco Ferrari: There's nothing formal yet; we're evaluating that. Regarding your first question, let me go country by country rather than business by business. Bolivia, the bank, is performing quite well. Unfortunately, I always say we have the right franchise in the wrong country.
Speaker Change #268: Let me go through.
First on business by business.
Olivia.
Speaker Change #268: The bank is performing quite well unfortunately.
Speaker Change #268: Where we have the right franchise in their own country.
Gianfranco Ferrari: The country microenvironment is very complicated. What we've been doing over the last, I would say, 18 months is de-risking our portfolio. Even though it's not a very dollarized portfolio, we've been de-dollarizing our portfolio, too.
Speaker Change #268: The country environment is very complicated.
Speaker Change #268: What we've been doing over the last I would say 18 months is derisking our portfolio.
Speaker Change #269: Even though he is not afraid of life portfolio, we've been Ddos debriefing our portfolio too.
Andres Soto: Congratulations again on the results.
Speaker Change #268: Hmm.
Gianfranco Ferrari: The nice thing we've been doing in Bolivia, and we will talk about it more in September, is that we launched YAPE in Bolivia, I would say a year ago or 18 months ago, not because Bolivia is a large market or an interesting market by itself, but because we wanted to confirm or not our thesis that IAPE was exportable and leveraged a non-living bank in the country. And so far, we've been successful with IAPE in Bolivia, and as I mentioned, we'll be talking more about it in September 2016. That's Bolivia. Obviously, we don't plan to invest more in Bolivia.
Speaker Change #268: The nice thing we've been doing in Bolivia.
Sergey Dubin: Next question comes from Sergey Dubin with HL. Please go ahead. Yes, I have a question regarding the direction of your net infosmarsion in the context of your asset yield and funding costs. I see that both asset yield and basically your asset yield expanded. Your funding cost is also rose, but the flow of the asset yield so your name has it expand as well. But could you put it in context also of the interest rate trajectory?
Speaker Change #268: We will talk about it more in September is that we launched <unk> in Bolivia, I will tell you a year ago or 18 months ago.
Speaker Change #268: Not because <unk> is a large market or interesting market by itself, but because we wanted to do.
Speaker Change #268: To.
Speaker Change #268: Confirm or not our thesis that gap it was exportable leveraging on our non leading bank in the country and so far we've been successful with the up and building up I imagine we'll be.
Sergey Dubin: Does it look like, as you showed in the presentation, the central bank has been cutting away since June of 23. So how are you able to achieve expansion in asset yields for so long after the rate cuts have begun? Number one, and number two, how sustained able is that new expansion given that you expect the CRP to cut rate to 5% but end of the year?
Speaker Change #268: Talking more about it in September 26, that's Bolivia.
Speaker Change #268: Obviously, we don't plan to invest more in Vogue again.
Gianfranco Ferrari: We got in. Colombia, the whole country, is going through a lot of structural changes, the financial sector, I'm sure some of you are investors in some of the large banks in Colombia, the financial sector overall is struggling, the microfinance business, we've talked about it, Credicorp Capital in Colombia is performing quite well, we share the overall results of Credicorp Capital, we feel quite comfortable with the ROE we have, the plan we deployed last year, we I'm talking about Colombia and Chile at the same time when I talk about Credicorp Capital.
Speaker Change #268: Regarding.
Speaker Change #268: Colombia.
Speaker Change #270: The country the whole country is going through a lot of structural changes the financial sector I'm sure. Your some of your investments in some of the large banks in Colombia.
Sergey Dubin: That's the first question. So far we've been able to reprise loans due to the current risk situation and at the same time, low cost funding has been improving in an important way and also we have returns from investments and all of that has contributed to our numbers and to the fact that we're expecting to be on the upper side of the range. I want to make a general comment and then I'll comment specifically.
Speaker Change #270: The financial sector overall is struggling.
Speaker Change #270: The micro finance business, we've talked about it.
Speaker Change #271: Great capital in Columbia is performing quite well, we shared the AR. The overall result of critical capital.
Speaker Change #272: We feel quite comfortable with the euro.
Speaker Change #272: The land, we deployed last year, where we're not.
Speaker Change #272: Actually beyond the Kpis, we set.
Sergey Dubin: If we were to do nothing, the sensitivity of our portfolio to changes in rates with a lot of assets, basically a high basis point shift both in dollars and in solace, would be around 14 basis points in a year and around 20 in a three year period. We measured it in a three year period because of the movement of the whole portfolio and the durations. So that is in the case where you basically maintain the portfolio as it is during these changing rates. Of course that's not the idea. We're moving more onto the retail side and that should change the mix and allow us to maintain a resilient meme in the foreseeable future.
Speaker Change #272: With a target for 2025.
Speaker Change #273: While copy.
Speaker Change #274: I'm, sorry, I'm talking about Colombia, and Chile at the same time, when I'm talking about capital.
Gianfranco Ferrari: And lastly, regarding Chile and Tempo, actually, I've been to Chile this week. TEMPO is right on track with the KPIs we set when we started. We've been assessing the development of TEMPO quarter by quarter, and the performance of the business is satisfactory today. We have already applied for a full banking license, and we expect the first stage of that license to be awarded quite soon. So the plans are there. Therefore, we plan to keep investing in TEMPO until it reaches breakeven. We will also be talking about it in September 2021.
Speaker Change #274: And lastly, regarding Chile, and temple actually being this weekend.
Speaker Change #274: Sheila.
Speaker Change #274: <unk>.
Speaker Change #274: Temple is right on track with the Kpis, We said when we started we.
Speaker Change #274: We've been assessing.
Speaker Change #274: Assessing the development of simple quarter by quarter.
Speaker Change #274: The performing of the performance of the business is so different story today.
Speaker Change #274: We already asked for our banking full banking license.
Speaker Change #274: We expect that license to be awarded.
Speaker Change #274: Sorry, the first stage of that license to be awarded quite soon so the plants harder therefore.
Sergey Dubin: Okay, just to clarify because I want to make sure I understand this very clearly. So are you saying that some portion of your loan book is not directly tied to reference rate and you price it more in kind of like risk fashion. So it's not, I would suppose that would be more in SME, PMA and more high risk segments. Is that right? So these. Yeah, that's what happened during the last year because of the changing risk conditions in the market.
Speaker Change #274: Our plan to keep investing in temple until it goes it reaches breakeven we will also be talking about it in September.
Gianfranco Ferrari: Presumably you don't have a date for breakeven right now.
Speaker Change #275: Presumably you don't have a date for breakfast breakeven you right now.
Gianfranco Ferrari: We do have a date in our plan, but I'm not sure we can share it with you today. Thank you.
Speaker Change #275:
Speaker Change #276: Do have a.
Speaker Change #276: David.
Speaker Change #277: I'm not sure we're going to share it with you.
Carlos Gomez: Okay, thank you so much.
Speaker Change #278: Okay. Thank you so much.
Gianfranco Ferrari: It appears there are no further questions at this time. I will now turn the call back over to Mr. Gianfranco Ferrari, Chief Executive Officer, for closing remarks.
It appears there are no further questions at this time I will now turn the call back over to Mr. Yun Franco for O'reilly Chief Executive Officer for closing remarks.
Sergey Dubin: So all of our book is of course related to base rate movement. But given the credit cycle that we've been through, we've been able to reprise to the upside some of our loans because of higher risk in the cycle. When that risk comes down over time, that should also normalize.
Gianfranco Ferrari: Thank you. And thank you all for your questions.
Speaker Change #279: Thank you and thank you all for your questions. Our second quarter results showcase a solid ROI of 16, 2% driven by Uzi ROFO banking insurance and investment management and advisory supported by improved loan growth and high transactional activity.
Sergey Dubin: Okay, so that's fine, that's clear.
Sergey Dubin: And then the second part of my question was given the ongoing decline in reference rates, and then if you expect these rates to come down, so that obviously suggests that you're going to reprise your loans down, which means that your effort yields will come down, we're probably some more substantially. So would you still be able to reprise your deposits because overall funding down more so that you can tip your name, if we flatter, do you think there's some downside to them, and later, you know, part of this year, maybe next year.
Gianfranco Ferrari: Our second quarter results showcase a solid ROE of 16.2% driven by Udivelso Banking, Insurance, and Investment Management at Advisor, supported by improved loan growth and high transactional activity. Significant strides in strategic initiatives resulted in a robust first half of the year, positioning us to achieve our 2024 ROE guidance. Our financial performance was sound, with resumed loan growth, a resilient NIM, and a solid balance sheet. With these dynamics, more offsetting the still high progression.
Speaker Change #280: You don't strike and strategic initiatives resulted in a robust first half of the year positioning us to achieve our 2024 ROA guidance.
Speaker Change #280: Our financial performance was strong with resumed loan growth, a resilient NIM and a solid balance sheet.
Speaker Change #281: With these dynamics Morrow failure.
Speaker Change #281: Feel high provisions.
Gianfranco Ferrari: As the economy strengthens, we are all positioned to capitalize on new opportunities and meet our clients' evolving needs. In Peru, despite current systemic issues in the microfinance sector, we remain confident in our hybrid business models and are conducting a thorough review of risk capabilities to realign this business, as we still do not feel comfortable with the risk assessment of this business. Although the quarter's ROE fell short, this business segment has created value for Credicorp over the longer term, and we anticipate a gradual recovery in profitability.
Speaker Change #283: As the economy strengthens we are well positioned to capitalize on new opportunities and to meet our clients' evolving needs.
Speaker Change #283: In Peru, despite current systemic issues in the Microfinance sector, we remain confident in our hybrid business models.
Sergey Dubin: If we didn't change the composition of the portfolio over time, yes, there should be some pressure downwards on NIM, because we already have a very high market share in local deposits, we have been reprising those. And even though there might still be some reprising to be done, where rates come down in time deposits, et cetera, the effects aren't as big. Having said that, and we'll do that of course over time, but on the other hand, we are shifting the mix of the portfolio and moving into more retail, where you have a higher margin. So that means is what makes up thing that we'll be able to sustain this level for longer.
Speaker Change #284: Correcting a thorough review of risk capabilities to realize this business or are we still do not feel comfortable with risk assessment of this portfolio.
Speaker Change #284: The borders.
Speaker Change #284: Sure. This business segment has created value for Greg over the longer term and we anticipate a gradual recovery in profitability. Our focus remains on supporting this essential population segment, we serve through <unk>.
Gianfranco Ferrari: Our focus remains on supporting the essential population segment we serve through MIVAC. The economic context in Peru is favorable, with a stable outlook for 2025 driven by strong underlying fundamentals, including controlled inflation levels, increased public investment, and robust commodity prices.
Speaker Change #286: The economic context, and Peru are favorable with a stable outlook for 2025, driven by strong underlying fundamentals, including controls inflation levels increased public investment and a robust commodity prices in this context, we reaffirm our long term target of 18% Roe.
Sergey Dubin: Okay, and could you repeat your thoughts? Yeah, so your sensitivity to, let's say, I don't know what is like 25 basis points and rate moves is 14 basis in NIM. Is that correct? To 100, the calculation I gave is 100 basis points move parallel move, both in dollars and dollars. That has an impact in three years of around 20 basis points in one year, around 14 basis points. That is with the portfolio without having any changes, you know, so that's basically taking the back to that it is and going through the cycle of rates coming down. When we move the portfolio and we go a little bit more into retail, that's when we compensate a part of that.
Gianfranco Ferrari: In this context, we reaffirm our long-term target of 18% ROE. This profitability level will be supported by a resilient NIM during a period of decreasing rates and a reduced cost of risk once the credit cycle is over. These dynamics will be further enhanced by strong non-interest income and optimized efficiency as disruptive initiatives mature. Our disruptive financial franchise is thriving, driven by a clear strategy and goals. Our commitment to digital advancement and customer-centered growth is evident in the tangible results across both core and disruptive business.
Speaker Change #286: This profitability level, we re supported by a resilient NIM.
Speaker Change #286: During a period of decreasing rates and a reduced cost of risk was the credit cycle is overcome.
Speaker Change #286: These dynamics will be further enhanced by strong non interest income and optimize efficiency disruptive initiatives mature.
Our disruptive financial franchise is pricing driven by a clear strategy and goals our commitment to be bugs and customer centric growth is evident in the tangible results our growth both core and disruptive businesses.
Gianfranco Ferrari: Investments in innovation have led to increased digital customers, sales, and transactions, with reductions in unitary costs and notable improvements in customer engagement and satisfaction. Lastly, YAPE has surpassed break-even ahead of schedule with significant income growth and diversification. We look forward to providing further details on this exciting business and our innovation portfolio at the Credicorp Strategic Update event on September 26 at 2 p.m. Eastern Time. Thank you all for participating in today's call.
Speaker Change #286: Investments in innovation have led to increased digital customers.
Sergey Dubin: Right, so that's a perfect segue into my next question. You've been saying this line for like a long time that you guys are moving into retail and it should bring higher NIM, which is true, but also it's very part of now it's bringing higher cost of risk as well. And it's actually what it looks like to me, a lot of people here focused on the bunker, but really your SME PME segment was in credit core, which I think contributes most to a credit cost increase, which is by sheer size of the portfolio.
Speaker Change #286: <unk> and for infections with reductions in unitary costs and notable improvements in customer engagement and satisfaction.
Lastly, yes, GAAP at Hereford breakeven scheduled with significant income growth and diversification, we look forward to providing further details on this exciting business on our innovation portfolio.
Carbon strategic update event on September 26 at two P M Eastern time.
Speaker Change #287: Thank you all for participating in today's call.
Sergey Dubin: So my question there is, how are you, first of all, like what exactly changed between Q1 and Q2, because I was under impression that your credit cost for most vulnerable last year and expectations of the NIM, you then lean your happen. It wasn't as bad, you reverse on provision, so it looked like things were actually improving, but then now it's deteriorating again. So what has changed between Q1 and Q2 that you saw this deterioration?
Operator: Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect.
Speaker Change #288: Thank you ladies and gentlemen. This concludes today's presentation you may now disconnect.
Speaker Change #288: Okay.
Speaker Change #288: Yes.
Speaker Change #288: Yes.
Yes.
Speaker Change #288: Yes.
Speaker Change #288: Yes.
Speaker Change #288: [music].
Sergey Dubin: Well, what are we? Nothing has changed in the sense that the trend has been the same. What has been a little bit of a surprise is that it was stronger than we expected beforehand. So the point is, when we were in a bad-grade cycle, we were expecting it to start turning a little bit earlier in the year and it's taken longer, but it's not necessarily changed in any way. It's not necessarily linked to the specific moment. So we're not going to rush into something today when we're still expecting the risk to be measured strategically. We are moving more into the retail segment.
Speaker Change #288: Yes.
Speaker Change #288: [music].
Operator: Okay, so that's the month. There's a lot of people in the coal.
Carlos Gomez: What we can arrange with our IR team is a specific conversation and we can go as much detail as you want, if you're okay. All right, that's fine. Thanks. Great, thank you.
Carlos Gomez: The next question comes from Carlos Gomez, which HSBC. Please go ahead. Hello, thank you. First, thank you for this closure on the new sensitivity that's very clear and we appreciate that. I have two different questions. One is about your international operations given that, but who is taking time to take off. How do you see your operations in Bolivia, in Colombia, and in Chile? And how much are you willing to invest in your FinTech in Chile?
Carlos Gomez: And take on regarding the investor in generation, you mentioned the possibility of a story, very different. I've noticed that another company of the city group has been very active in buybacks. Is it something that critical will consider at some point, or will you stay with your policy of always sticking to different.
Carlos Gomez: Thank you. Good morning, Carlos. Let me start with the second one. As of today, we were not evaluating any buyback opportunities. But we mentioned before with the plan is to pay the relevant important even the ordinary living with me, June. This year, we raised that by 40% I believe. And if the growth for the growth is not there or whatever, we'll pay an extraordinary dividend. I would say the last quarter of the year. Those are the plans. There's nothing formal yet. We're evaluating that.
John Franco Ferrari: Regarding your first question, let me let me go back on business by business. Bolivia, the back is performing quite well. Unfortunately, I always say we have the right franchise in the wrong country. The country environment is very complicated. What we've been doing over the last, I would say, 18 months is de-wisking our portfolio. And even though it's not a very dollarized portfolio, we've been de-dolarizing our portfolio too. The nice thing we've been doing in Bolivia, and we will talk about it more in September, is that we launched Yapet in Bolivia, I would say a year ago, 18 months ago, not because Bolivia was a large market or an interesting market by itself, but because we wanted to confirm or not our thesis that Yapet was exportable and leveraging on a non-leading bank in the country, and so far being successful with Yapet in Bolivia, as I mentioned, will be talking more about it in September, 26th. That's Bolivia, obviously we don't plan to invest more in Bolivia.
John Franco Ferrari: Regarding Colombia, the whole country is going through a lot of structural changes, the financial sector, and I'm sure some of you are investors in some of the large banks in Colombia, the financial sector overall is struggling. The microfinance business we've talked about it, the credit card capital in Colombia is performing quite well. We've shared the overall results of credit card capital. We feel quite comfortable with the ROE we have, the plan we deployed last year.
John Franco Ferrari: We're going to actually be beyond the KPIs we set with a target for 2025, so we're quite happy that I'm talking about Colombia and Chile at the same time, and I'm talking about a very good capital. And lastly, regarding Chile and tempo, actually being this week in Chile, tempo is run track with the KPIs we said when we started, we've been assessing the development of tempo quarter by quarter. So the performance of the business is satisfactory today.
John Franco Ferrari: We already asked for a banking full banking license. We expect that license to be awarded. Sorry, the first stage of that license to be awarded quite soon, so the plans are there. Therefore, we plan to keep investing in tempo until it reaches break even. We will also be talking about it in September 20th.
John Franco Ferrari: [inaudible] Significant strikes in strategic initiatives resulted in a robust first half of the year, positioning us to achieve our 2024 R.O.E, guidance. Our financial performance was found with resumed loan growth, a resilient name, and a solid balance share. With these dynamics, more than afraid, they feel high provisions. As the economy strengthens, we are all positioned to capitalize on new opportunities and meet our clients' evolving needs.
John Franco Ferrari: In Peru, despite current systemic issues in a micro-final sector, we remain confident in our hybrid business models and are conducting a thorough review of risk capabilities to realign this business and we still do not feel comfortable with risk assessment of this portfolio. When the quarters R.O.E, first short, this business segment has created value for quick over the longer term and we anticipate a gradual recovery in profitability. Our focus remains on supporting the essential population segment we serve through Milagros.
John Franco Ferrari: The economic context in Peru is favorable with a stable outlook for 2025, driven by strong underlying fundamentals, including controlled inflation levels, increased public investment, and robust commodity prices. In this context, we reaffirm our long-term target of 18% R.O.E. This profitability level will be supported by a resilient name during a period of decreasing rates and a reduced cost of risk once the grade cycle is overcome. This dynamics will be further enhanced by strong non-interest income and optimize efficiency as is rapid initiatives mature.
John Franco Ferrari: Our is rapid financial franchise is thriving, driven by a clear strategy and goals. Our commitment to digital advancement and customer-sensing growth is evident in the tangible results across both core and disruptive businesses. Investment in innovation have led to include digital customers, sales and transactions, with reductions in unitary costs and notable improvements in customer engagement as a distraction. Lastly, Yath Gapet has for part break even out of schedule with significant income growth and diversification.
John Franco Ferrari: We look forward to providing further details on this exciting business on our innovation portfolio at the CrayCop Strategic Update event on September 26 at 2 p.m.
Operator: Thank you all for participating in today's call. Thank you ladies and gentlemen.
Operator: This concludes today's presentation.
Operator: You may now disconnect.