Q3 2024 Credicorp Ltd Earnings Call
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Speaker Change: Good morning, everyone. I would like to welcome you to the Credit Corps Limited third quarter 2024 conference call. A slide presentation will accompany today's webcast, which is available in the investor section of Credit Corps' website. Today's conference call is being recorded. As a reminder, all participants will be in listen-only mode.
Speaker Change: 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.
Speaker Change: 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 you mute your function and it is turned off to allow the signal to reach our equipment.
Speaker Change: Now, it is my pleasure to turn the conference call over to credit cards IRO, Milagros Ciguenas. You may now begin.
Milagros Ciguenas: Thank you and good morning everyone. Speaking on today's call are Gianfranco Ferrari, our Chief Executive Officer, and Alejandro Perez-Reyes, our Chief Financial Officer.
Milagros Ciguenas: Participating in the Q&A session will also be Francesca Raffo, Chief Innovation Officer, Cesar Rios, Chief Risk Officer.
Carlos Sotelo, my Banco Chief Financial Officer.
Andres Soto,
Speaker Change: Before we proceed, I would like to make the following safe harbor statement. Today's call will contain forward-looking statements, which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties. And I refer you to the forward-looking statements section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances.
Speaker Change: Gianfranco Ferrari will begin the call with remarks on the improved macroenvironment, a brief overview of our quarterly results and recent developments, followed by Alejandro Perez Reyes, who will provide a more detailed analysis of key macroeconomic indicators, our financial performance, and revised outlook for 2024.
Jamfranco, please go ahead.
Speaker Change: Thank you, Milagros. Good morning, everyone. Thank you for joining us today. 1
Speaker Change: The positive momentum we saw in the first half continued into the third quarter, allowing us to deliver a record-high bottom line of 1,523 million solids this quarter.
Speaker Change: Additionally, we distributed our special dividends achieving a total dividend payout of 75.3% to date.
Speaker Change: This performance was driven not only by an improving macroeconomic climate, liquidity inflows captured from pension withdrawals, and a relatively more stable political environment.
Speaker Change: But more importantly, by the strategic initiatives we've implemented across the organization.
Speaker Change: We have reached a pivotal inflection point where the benefits of these initiatives are consistently materializing across our businesses.
Speaker Change: reinforcing our competitive strengths and further decoupling our performance from the external macroeconomic factors.
Speaker Change: Despite geopolitical tensions in the Middle East, we are maintaining our GDP growth projections of 3% for 2024 and 2.8% for 2025, on continuing signs of recovery in Peru.
Speaker Change: Though we do recognize that ongoing developments in that region and the results of the U.S. elections could cause some volatility.
Speaker Change: In October, inflation rose to 2%, up from 1.8% in the previous month, which was the lowest level in nearly four years.
Speaker Change: As such, it remains within the central bank's target range of 1 to 3 percent.
Speaker Change: Our strategy to diversify revenue streams with the goal of generating 10% of the risk adjusted revenues from new businesses by 2026 is strengthening resilience in the current environment.
Speaker Change: This approach is particularly important given the slow and unexpected recovery in business confidence.
which impacts private sector investment and demand for wholesale loans.
Speaker Change: At the same time, we remain committed to currently managing retail loan growth. Importantly, we are seeing a reduction of NPLs, supported by additional liquidity from patient withdrawals.
Speaker Change: As discussed during our recent strategic update, we remain fully focused on deepening market penetration with new value propositions, exploring untapped business segments, and accelerating the adoption of transformative technologies.
Speaker Change: When we remain committed to leading the way in shaping the financial products and customer experience of the future, we will do so with a disciplined approach, ensuring alignment with our strategic goals and improved financial management.
Speaker Change: Now, moving on to the regulatory front, after years of political debate, Peru enacted pension system reform in September, marking a significant step toward enhancing financial security for retirees.
Speaker Change: We're optimistic about its potential to strengthen the system's ability to channel national savings into infrastructure and productive investments, driving long-term economic growth.
Speaker Change: Before turning to our third quarter results, let me discuss a few recent corporate developments.
Speaker Change: Starting with Tempo, our digital world in Chile. After quickly establishing a strong presence in a competitive market, we received provisional approval from the Chilean Financial Market Commission on October 25th to create a new banking entity named Tempo Bank Chile.
Speaker Change: This is a significant milestone for Grecov's expansion into the Chilean financial market as TEMPO advances towards securing full operational authorization, which we expect to happen in 2025.
becoming the first regional bank to operate in Chile.
Speaker Change: Next steps for Tempo to become a neobank involve obtaining existence and operational authorization from the CMS.
Speaker Change: Furthermore, reaffirming our commitment to innovation and our goal of revolutionizing the financial ecosystem in the region, Francesca Raffo, our Chief Innovation Officer, has resigned from her position as Deputy General Manager at DCP.
Speaker Change: to focus exclusively on leading innovation at QueryCorp and continue the transformation of the financial markets in Peru and Latin America.
Speaker Change: Lastly, I'm pleased to share that on October 31st, we announced the acquisition of the remaining 50% stake in our joint venture with Vempresas de América that includes three businesses.
Speaker Change: that put medical insurance, corporate health insurance for employees, and medical services.
Speaker Change: The acquisition strengthens Credit Corp's ability to fulfill its aspiration of creating a more sustainable and inclusive economy by improving insurance and healthcare access while advancing financial inclusion in Peru.
Turning now to the third quarter reports.
[inaudible]
Speaker Change: We delivered a strong ROE of 18.5%, primarily driven by Universal Banking and Insurance.
Speaker Change: and supported by diversified revenue streams and high-level transactional activities in a recovering economy.
Speaker Change: Risk-adjusted mean improved, reflecting a disciplined interest rate management strategy, along with our leading low-cost funding position and lower prohibitions.
Speaker Change: Notably, our vast solvency allowed us to declare a special dividend of $11.00 per share while also contemplating our plans for continued sustainable growth.
Speaker Change: We are witnessing significant benefits from our investments in innovation and enhancing digital capabilities.
Speaker Change: We strengthen our competitive modes, elevate our relationships with current clients, and promote financial inclusion.
Speaker Change: Looking ahead, we maintain our GDP growth expectation of 3% for this year and expect a similar outlook for 2025.
Speaker Change: MiBanco's performance is improving, driven by both the overall economic recovery and the specific learnings and measures taken regarding origination, monitoring, collections and rescheduling processes.
Speaker Change: We are continually evaluating opportunities for further structural risk management and operational improvement to achieve our medium target of a 20% ROE. As we make progress, we will keep you updated.
Speaker Change: We remain committed to the long-term growth potential of the market served by Libanco, given its low market penetration. Additionally, we're seeing increasing synergies between Libanco and Yape, derived from the potential for enhanced insights from the massive amounts of data collected by both companies.
Speaker Change: I will now turn the call over to Alejandro, who will go into further details on the microenvironment, each of our operating businesses, and our consolidated results. Alejandro?
Thank you, Gianfranco, and good morning, everyone.
Alejandro Perez-Reyes: As Gianfranco mentioned, we deliver strong overall operating and financial results, including a record high net income.
Alejandro Perez-Reyes: This performance was achieved despite an environment of negative loan growth and an improving but still elevated cost of risk, which attests to the resilience of our businesses and the power of Craycroft's diversified revenue base.
Alejandro Perez-Reyes: As I discuss the highlights of the quarter, I will focus on the quarter-over-quarter results to emphasize recent shifts in trends.
Alejandro Perez-Reyes: Results have been positively impacted by an uptick in transactional activity, favorable results from recent risk management measures, and increased liquidity levels across the financial system.
Partly attributable to patients on withdrawals.
Alejandro Perez-Reyes: While the additional liquidity increased loan amortizations, it also positively impacted asset quality, funding costs, and transactional debt.
Alejandro Perez-Reyes: Loans contracted 1.2% measured in average daily balances and 3% in quarter-end balances.
Alejandro Perez-Reyes: This contraction was driven primarily by corporate loans at DCP and by MiBanco amid more restrictive cohesion guidelines.
Alejandro Perez-Reyes: On the other hand, asset quality improved. The NPL ratio dropped 12 basis points to 5.9%, driven primarily by BCP and MiBank.
Alejandro Perez-Reyes: At BGP, the NPL contraction was led by the corporate, consumer, and credit card segments.
Alejandro Perez-Reyes: Provisions fell 20.6%, driven primarily by improved payment performance in retail banking at the Mississippi and Nevada.
As a result, the cost of risk fell to 2.4%.
Alejandro Perez-Reyes: We deliver stronger margins with net interest income increasing by 3.5%.
Alejandro Perez-Reyes: This growth was driven primarily by a decrease in interest expenses, as low-cost deposits continue to enter in the mix and now represent 56.2% of the funding base.
Alejandro Perez-Reyes: As a result, MEAN increased 10 basis points to stand at 6.4%.
Alejandro Perez-Reyes: Non-interest income contracted this quarter as regulatory changes impacted the foreign transfer service businesses at BCP Bolivia.
Alejandro Perez-Reyes: C-income contracted 3.5%. However, excluding BCP Bolivia, C-income rose 4.4%, benefiting from strong transactional activity at BCP through credit cards, debit cards, and YATS.
Gains on FX transactions contracted 20.6%.
Alejandro Perez-Reyes: However, excluding BCP Bolivia, they grew by 1.9%, boosted by increased wood volumes. Lastly, insurance underwriting results fell 7.5%, reflecting less favorable reinsurance results in the PMC business.
Alejandro Perez-Reyes: All in all, we delivered an 18.5 ROE this quarter, supported by the aforementioned revenue dynamics, active risk management, and disciplined risk control, while maintaining sound capital levels. On cumulative terms, ROE stood at 17.7%.
Next slide, please.
Alejandro Perez-Reyes: In the third quarter, Peru's economy continues to recover. Economic activity grew 4% year-over-year on average in July and August.
Alejandro Perez-Reyes: Notably, non-primary GDP accelerated by 4.2% in the Z-period, its highest growth rate in more than two years.
Alejandro Perez-Reyes: In September, GDP growth is expected to have slowed down slightly, bringing the quarterly growth rate to approximately 3.5%.
Alejandro Perez-Reyes: Several commodity export prices, coupled with lower import prices, have driven terrestrial trade to historical highs.
Alejandro Perez-Reyes: This trend is expected to provide a tailwind for growth in the coming quarters, particularly if it propels higher mining investments.
Alejandro Perez-Reyes: According to the Central Bank, expectations for the economy and for investments have improved and have remained at the optimistic range for most of the year.
Alejandro Perez-Reyes: The Chancay Port, set to be inaugurated next week during the Asian-Pacific Economic Cooperation Meetings, is projected to boost GDP by 0.3% in 2025 during its first phase of operation, according to the Central Bank.
Alejandro Perez-Reyes: The new port will reduce shipping times between Asia and Peru by 10 to 15 days. This improvement in efficiency has the potential to transform trade dynamics and routes between the west coast of South America and Asia.
Alejandro Perez-Reyes: Public investment has also driven economic growth, rising by 25% year-over-year in the first nine months.
Alejandro Perez-Reyes: This constitutes the best print in 11 years, excluding the pandemic period.
Alejandro Perez-Reyes: Recently, Moody's and Fitch reaffirmed Peru's credit rating, 3 and 2 notches above investment rate, respectively.
Both agencies upgraded the outlook from negative to stable.
Alejandro Perez-Reyes: Moody's emphasized that the adoption of political reforms has alleviated medium-term concerns about institutional stability. Meanwhile, Fitch noted that sound policymaking has supported economic recovery this year and preserved broad macro-financial stability.
Speaker Change: Considering the recent economic developments, we reaffirm our Peru's GDP growth forecast of 3% for this year and expect a similar growth rate for 2025.
Next slide, please.
and Cesar Briceno.
Speaker Change: The federal reserve recently began easing its policy stance with a 50-basis point back in September.
Speaker Change: It's first reduction since the pandemic, followed by a 25 basis point cut yesterday.
Speaker Change: While further cuts are expected, uncertainty remains regarding their pace, particularly as the economy's trajectory will depend on the new government's policies.
Consequently, volatility in dollar rates is likely to persist.
Speaker Change: In April, inflation in Peru has comfortably remained within the central bank's target range of between 1% and 3%, while core inflation followed suit more recently.
Speaker Change: The gradual rate cut approach adopted throughout the year is expected to continue in the coming months as the rate approaches its neutral level during the first half of next year.
for more information visit www.FEMA.gov
In Colombia, inflation slowed to 5.8% year-over-year in September.
Speaker Change: This rate continues to be above the upper limit of the target range, which is between 2% and 4%.
The Central Bank continues to pursue a restrictive policy.
Speaker Change: Finally, in Chile, the central bank has gradually reduced the pace of monetary easing as the rate moves towards unusual levels and the bulk of cuts have already occurred.
Speaker Change: Since July 2023, the policy rate has fallen 600 basis points. This has led the country's currency to depreciate nearly 10% year-to-date, offsetting the positive impact of higher copper prices.
Next slide, please.
Speaker Change: This quarter, BGP's profitability has been boosted by a reduction in the cost of funding, higher satisfaction levels, and improvements in client payment performance, as risk management measures to protect and equity roles in individuals on the lack of inflows from pensions and withdrawals.
Equatorial-quarter dynamics included.
Speaker Change: Total loans measured in average daily balances fell 0.8% driven by a reduction in the corporate loan segment. After a large client from the construction sector, we paid a long-term operation.
by a drop in individuals, way through liquidity...
For more information, visit www.FEMA.gov
Speaker Change: NPL fell 4.6%, mainly driven by wholesale banking, which raised their loan repayments by a corporate client from the commercial real estate sector, and consumer and credit cards, fueled by improvement in origination, monitoring, collections, and rescheduling processes, and by clients who leverage excess liquidity to make repayments.
Speaker Change: In terms of drivers and results, NIM rose 8 basis points to stand at 6.2%, aided by a low-cost funding structure that reflects a strategy of strengthening primary banking relationships with our clients.
Speaker Change: Other core income grew 6.9%, driven primarily by an uptick in fee income from transactions via credit and debit cards, and secondarily by higher fees from the payments line in-depth.
and Cesar Briceno.
and Cesar Briceno. Thank you. Thank you.
Speaker Change: Cost of risk, fair 51 basis points to stand at 2.1%.
Speaker Change: The construction in Mauritius was driven primarily by an improvement in payment performance in retail banking.
Speaker Change: In individuals, particularly consumer and credit cards, provisions fell after the weight of newer and healthier vintages within the loan portfolio rose, rescheduling efforts were ramped up in the last quarter, and debt repayment rose in a context marked by higher liquidity across the system.
Speaker Change: In SMEs, the construction and provision reflected mainly the fact that newer and healthier vintages increase their weight within total loans.
Speaker Change: and Lesley Financier-Watt Grant. Regarding year-over-year dynamics, I would like to highlight income growth.
Speaker Change: NII was 12.8% fueled mainly by an uptick in interest increase.
and by adjoining the funding goal.
Speaker Change: Other core income was 18.2% posted by an increasing transactional level.
Speaker Change: BCP's transactional business has become increasingly relevant, as illustrated by the upward trend in the ratio of other core income to assets, where YAPE has contributed greatly to fee generation.
Speaker Change: On a year-to-date basis, BCP continues to improve efficiency through positive operating leverage. Operating expenses rose 10.4%, driven mainly by disruption, personal expenses, and increased spending on licenses, system infrastructure usage, and cloud capacity in a context of growth in transactions via digital channels.
Speaker Change: Meanwhile, operating income grew 12% and BCP's efficiency ratio is 2.37.4%.
Speaker Change: In this context, BCP's third quarter contribution to ROE rose to 24.5%, standing at 22.9% year-to-date.
Thank you. Thank you.
Speaker Change: The number of active yaperos continues to grow this quarter with the 13 million mark. This put us well on our way towards reaching our aspiration of 16.5 million active users by 2026.
Speaker Change: These users are making an average of 44 transactions per month.
Speaker Change: In this context, the upper revenues continue to accelerate while expenses remain under control.
Speaker Change: At the end of last quarter, revenue for active users reached $4.9, further decoupling from expenditures for active users.
Speaker Change: With this achievement, we are on track to realizing our aspiration of ensuring that disruptive initiatives contribute significantly to creditors' revenues after provisions.
Speaker Change: The app statement business is the app's forerunner for revenue growth, with a potential of growing four times going forward, as mentioned in our strategy guide.
Speaker Change: Income generation this quarter was fueled by Yad Vengrezas, which offers value-added services to businesses. Additionally, bill payment transactions have risen 3.3 times since the third quarter of 2023.
Speaker Change: Within the financial business land, revenues are paid mainly from floating while loan disbursements continue to grow exponentially.
Speaker Change: By the end of September, we have disbursed loans to 1.1 million clients and are on track to achieving our 2026 aspiration of 5 million LLAPDs with a loan disbursed, while maintaining credit risk under control.
Speaker Change: It is important to note that 42% of the aforementioned borrowers received their first loans in the financial system through YATS.
Speaker Change: Finally, a market-based business has been a lever in fostering customer engagement. This is reflected in the gross merchant volume, which has grown 2.7 times year-over-year, mainly through Yandex.Com.
Next slide, please.
Speaker Change: of Mi Banco, the FBA ratio is improving at a faster pace than most of its peers thanks to the risk-management measures taken.
Speaker Change: On a quarter-over-quarter basis, Mi Banco's total loans, measured in average daily balances, fell 4.8% impacted by stricter origination policies.
Speaker Change: This drop reflects a contraction mainly in higher ticket loans, which was partially offset by growth in new disbursements in small ticket higher yield loans.
Speaker Change: Despite the drop in loans, NIM rose 25 basis points to 13.9%.
Speaker Change: primarily due to the drop in the cost of funding after the crisis.
Speaker Change: In terms of portfolio quality, NPL fell 8%, driven by a reduction in overdue loans.
Speaker Change: This evolution was fueled by tighter adjustments in origination guidelines, improvements in debt collection management, and by debt relief facilities in June and July of this year.
Speaker Change: From a year-over-year perspective, I would like to highlight the resilience of the Bank of Nimes. Erective loan pricing management, coupled with a decrease in the cost of funding, helps sustain Nimes despite a loan contraction.
Speaker Change: Operating expenses on a year-to-date basis remain under control and efficiencies stood at 52.8%.
Speaker Change: In this context, WIDANFO's third quarter contribution to ROE rose to 9.4% and stood at 8.9% year-to-date. We expect risk management measures to continue to yield positive results as healthy loan growth resumes.
Speaker Change: These dynamics should drive a controlled cost of risk and help us recover profitability levels.
Speaker Change: Ivango Bologna's profitability has moved into positive terrain, a recent strategy to slow down portfolio growth, control risk, and strengthen efficiency has bear fruit.
Next slide please.
Speaker Change: The profitability of Grupo Pacífico continues to be strong, with ROE standing at 24.3%.
Speaker Change: This strength was attributable to solid investment performance and a favorable contribution from the corporate health insurance and medical services business.
Speaker Change: Net income, however, dropped 2% quarter over quarter on the lack of a deterioration in insurance underwriting results due to higher claims, particularly if credit lies.
Speaker Change: It is worth highlighting that this quarter we started a 15-year partnership with Falabella for the distribution of insurance products. This partnership represents a great opportunity to facilitate access to insurance for more Peruvians.
Speaker Change: From a year-over-year perspective, global GDP and net income dropped 22 percent.
Speaker Change: This decline was mainly driven by lower insurance underwriting results, driven by medical assistance and credit-like products, and a base effect associated with last year's one-off net gain from exchange difference.
Speaker Change: This quarter's profitability is representative of the sustainable ROE level we expect to deliver at Pacific.
Next slide, please.
Speaker Change: Now I want to address the transaction we announced last week.
Speaker Change: In line with our strategy to expand our presence in Peru's insurance and healthcare markets, Credit Corp reached an agreement to acquire Empresas Anmédicas 50% interest in our joint venture with Pacifico Seguros.
Speaker Change: The acquisition includes Valmedica's 50% stake in the private health insurance, corporate health insurance, and medical services business.
I need subject to regulatory approvals and other standard conditions.
Speaker Change: The transaction value stands at 1,131,000,000 soles and is equivalent to credit card earnings from day one.
Speaker Change: I would like to underscore three key aspects of this strategic move.
Speaker Change: First, significant growth potential remains in both insurance and software sectors in Peru.
Speaker Change: The healthcare sector is underserved, with only 1.6 hospital beds per 1,000 inhabitants.
Speaker Change: Similarly, private insurance penetration is passing the low single digits, pointing out a significant growth opportunity.
and Cesar Briceno.
Speaker Change: Second, by increasing our participation in both sectors, we aim to deliver a comprehensive value proposition to clients while maintaining a strategic hedge across our business portfolio.
Speaker Change: Third, Greater York holds deep expertise and a proven track record in these sectors, with over 25 years in health insurance and 13 years offering medical services.
Speaker Change: In summary, this acquisition is a natural progression for Credit Core, reinforcing our commitment to high-quality products and services in the insurance and healthcare sectors.
Speaker Change: It has strategically positioned us to capture growth opportunities and continue delivering exceptional value for our clients and shareholders.
Next slide, please.
Speaker Change: Profitability in investment management and advisory business remains sound, with ROE standing at 15.9%.
Speaker Change: This performance was attributable to favorable business dynamics at our less volatile units, namely work management, asset management, and our sales activities within capital markets.
Speaker Change: These units are benefiting from increased transactional activity and growth in AUM.
Speaker Change: Net income, however, registered a 16% decrease quarter over quarter. This job was primarily attributable to a basis defect, which was associated with our discontinued corporate finance business unit and to less favorable tertiary results.
Speaker Change: On a year-over-year basis, net income rose 77 percent. That's primarily by our capital markets business.
Speaker Change: Pardon me, ladies and gentlemen, it appears we have lost connection to our speaker line. Please stand by while we reconnect. Thank you for your patience.
In partnership with
Hello, everyone. The speakers are back.
Speaker Change: We will continue right where we left off. Apologies for any inconvenience.
Yeah
Speaker Change: Sorry for the technical difficulties. I'm going to restart from the part of the consolidated evolution of credit cord on slide 13.
Speaker Change: beginning with the quarterly report of dynamics for the balance sheet for credit course consolidated evolution.
Speaker Change: On the asset side, cash and equivalents grew in a context of excess liquidity, which boosted the level of interest-earning assets despite a decline in loans.
Speaker Change: Loan balances decreased at BCP, mainly due to corporate individuals and at MiBanco, as previously explained.
Speaker Change: This shift in the asset mix led the yield on interest-earning assets to drop 5 basis points.
Speaker Change: And the liability side, an increase in low-cost deposits, which was fueled by withdrawals from pension funds, led our cost of funds to drop 18 basis points.
Speaker Change: On a year-over-year basis, on the asset side, cash and equivalents increased and the loan portfolio constructed, following similar dynamics as seen in the quarterly analysis.
Speaker Change: The investment portfolio, in turn, increased, and its duration was extended. In this scenario, the yield on interest-earning assets fell nine basis points.
Speaker Change: On the funding side, the aforementioned increase in low-cost deposits resulted in a favorable funding mix despite an increase in due-to-banks and recent bond issuances by BCP.
Speaker Change: Against this backdrop, the cost of funds fell 47 basis points, largely outpacing the decline in the yield on interest-earning assets.
Next slide, please.
Speaker Change: Moving on to loan portfolio quality, NPL fell 4.8% quarter over quarter driven by both BCP and Nivanko via the dynamics mentioned earlier.
Speaker Change: It is important to note that this quarter the evolution of the NPL volume reached a turning point, particularly in the segment most impacted by the recent credit cycle, individuals and the structure of the SMEs' portfolios at BCP, as well as by MiBanco's portfolio.
Speaker Change: The improvement in the payment performance, coupled with successful risk management measures at both PCP and MiBanco, led provisions to drop 20.6% quarter over quarter, while the cost of risk decreased 64 basis points to stand at 2.4%.
Speaker Change: In this context, the NPL covers a ratio of 364 basis points quarter over quarter to standard 98.7%.
Next slide, please.
Speaker Change: Moving on to analyzing our income and expenses. To analyze the evolution of core income, the most efficient approach is to exclude BCP Bolivia as regulatory changes impacted its foreign transfer service business.
Speaker Change: After excluding Bolivia, core income rose 3.7% quarter over quarter, driven mainly by NII through a decrease in the cost of funding and an uptick in fee income via credit cards, debit cards, and YAPE transactions.
Speaker Change: In terms of margins, NIM increased 10 basis points to stand at 6.43%, while risk-adjusted NIM rose 53 basis points to stand at 4.93%.
Speaker Change: I would like to emphasize that the year-over-year increase in MEEM of 32 basis points reflect both the rising strategic advantage of our funding costs and the fruits of a disciplined interest rate risk management strategy.
Speaker Change: Analyzing expenses and efficiency on an accumulated basis, operating expenses rose 8.2%, driven primarily by core businesses at BCP and disruptive initiatives at the credit card level.
Speaker Change: Expenses for disruptive initiatives at the credit card level rose 28.1%, the most significant expenditures were in Yape, Kulki, and Tempo, which combined accounted for 71% of disruptive expenses in the first nine months of the year.
Speaker Change: Finally, an uptick in operating income and accelerating operating expenses led the efficiency ratio to drop 51 basis points to stand at 44.6% in the first nine months of 2024.
Next slide, please.
Speaker Change: This quarter, ROE stood at 18.5%, driven by strong results in our universal banking and insurance businesses.
ROE for the first nine months was 17.7 percent.
Speaker Change: Net equity was slightly impacted this quarter by the payment of an extraordinary dividend of 11 soles per share. Accordingly, our dividend payout ratio stands at 75.3% for the year.
Speaker Change: It is important to note that BCP and MiBanco have not yet declared an additional deal.
Speaker Change: These results are a testament to our resilience and ability to adapt to challenging circumstances.
Speaker Change: And now I will move on to our updated guidance. Next slide, please.
and Cesar Briceno.
Speaker Change: As previously stated, our expectation for GDP growth remains at 3%.
Speaker Change: Regarding loan growth, although economic activity continues to enjoy positive momentum, the appetite for long-term financing in wholesale banking remains low. Additionally, our approach to origination in our retail banking and microfinance segments has been cautious.
Speaker Change: These factors, coupled with the impact of pension fund withdrawals, have led us to revise our guidance for total loan growth, measured in average daily balances, to around 0%.
Speaker Change: Our NIM is expected to situate in the upper end of our guidance range, which is between 6% and 6.4%.
Speaker Change: We expect the cost of risk in turn to situate in the upper end of our guidance, which is between 2% and 2.5%.
Speaker Change: We achieved solid efficiency levels as we continue to invest in our disruptive initiatives.
Speaker Change: We are controlling growth in expenses in our core businesses and expect to close the year with an efficiency ratio near the lower end of our guidance, which is between 46% and 48%.
Speaker Change: Given the aforementioned dynamics and based on the strong evolution of our other income and insurance underwriting results, we reaffirm our ROE guidance for 2024 at around 17%.
Speaker Change: With these comments, I would like to start the Q&A session.
and Cesar Briceno. Thank you. Thank you.
Speaker Change: We will now begin the Q&A session. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad.
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Speaker Change: We will pause for just a moment to allow everyone the opportunity for questions.
Speaker Change: 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.
Speaker Change: and a few more people who have been killed by the police. Thank you. I'm going to head back to the office and see if I can get some information from the
Speaker Change: And the first question comes from Ernesto Gabilondo with Bank of America. Please go ahead.
Speaker Change: Thank you. Hi, good morning, Gianfranco, Alejandro, Francesca, Cesar. Good morning to all your team. Congrats on the results and thanks for the opportunity to ask questions.
Speaker Change: We have mentioned the strategy to get higher exposure into the retail segment.
Speaker Change: But at the same time, probably Miranco could be in a much better position next year. So, wondering how you see the cost of risk evolving in 2025?
Alejandro? Yes, sure.
Thank you. Thank you.
Speaker Change: As you mentioned, we have seen an improvement this quarter. We think the trend will continue. There might be, perhaps, some change in the gradient of the trend once the pension money starts being...
Speaker Change: goes out of the system but still we are expecting cost of risk to continue to come down and our expectation for the...
next year and the following years is to...
Speaker Change: continue moving lower. Again, as you know, we are changing mix in... We were expecting a change in mix in our portfolio.
Speaker Change: So, we are not expecting to go back to cost-of-risk like pre-pandemic, but more based on a mix than individual segments. So, our expectations for 2025 are a lower cost-of-risk than pre-pandemic.
but we are having it here.
and Cesar Briceno. Thank you. Thank you.
Speaker Change: So, I'm going to follow up on this. So, cost of this guidance for DG was between 2 to 2.5, probably will be at the high end in 2024. You're looking to 2025, could maybe be in the mid to low end of that timing.
Wanguat, Phoenix.
We haven't given guidance yet for next year.
Well, we will beginning of next year.
Speaker Change: I would just mention that we're expecting a lower number for the coming year. We will give more details soon. The other thing to keep in mind...
Speaker Change: to have a sense of the recovery is that we're expecting a lower number despite the fact that we're not returning any provisions like we did this year, so this year we're going to be in the...
Speaker Change: upper side of the two and a half, but we returned the provision from El Niño. Next year we expect a lower number without necessarily having any kind of provisions returned, specific provisions.
[inaudible]
Speaker Change: Perfect, perfect, thank you. And then my second question will be on the subsidiaries.
Speaker Change: So can you share with us which are the subsidiaries with ROEs below COVIDCOVID's ROE of around 17%?
Speaker Change: And what do you think will be the strategy to get them closer to the credit cards at all levels? And considering that you will be developing these two mail banks, one Peru and one Chile, what do you see both banks reaching the break-even point?
Speaker Change: I'm sorry, what was the last part? Reaching what? I didn't get that. The break-even point. Ah, okay.
Speaker Change: If you want, again, I can start with the ROE part. So basically, currently, when you look at the subsidiaries...
Most of them are having a good performance.
trending toward the 18% with Pacifico, BCP above the number.
Craig or Capital, improving, and...
Speaker Change: Hopefully, it will get very close in a couple of years. Mi Banco has been really hit by the credit cycle, but our expectations are in the coming years, it will go back to the number, more closer to the 20% mark, which is what we aim for in that business.
Speaker Change: Good morning Ernesto, this is Gianfranco. Maybe just to compliment Alejandro...
Speaker Change: From an overall perspective, I would say the underperforming line of business is microfinance. As Alejandro mentioned, we expect
Speaker Change: We are targeting to have a sustainable ROE of 20% for the microfinance business.
Thank you.
Speaker Change: Maybe the other one, it's not that relevant, but the other one that is underperforming
Speaker Change: As I always say, it's the right franchise in the wrong country, we're doing what we can. The ROE there might be around 12-13%.
Speaker Change: and Cesar Briceno, and regarding the second part of your question, well, obviously out of the large ventures or initial innovative business, YAPI is beyond...
Cesar Briceno: break-even. Obviously we have a... I've mentioned it in previous calls...
Cesar Briceno: of the sources of income at IAPE have a J-curve, so we expect next year to be significant in terms of income. And regarding the other large one, which is TEMPO, we expect at the end of next year to be significant.
Cesar Briceno: at least two to three years to reach breakeven. Having said that, Tempo is right on track and slightly better actually than the original business plan.
I'm super happy. Thank you very much, Franco and Alejandro.
Thank you.
Speaker Change: The next question comes from Renato Maloney with Autonomous Research. Please go ahead.
Speaker Change: Hi, good morning. Thanks for taking my question here. So, you've mentioned how this access liquidity in the system has helped asset quality and your cost of funding. So, I wanted to understand if this is a short-lived impact or we're still going to see more of that in the upcoming quarters. And then, how do you reconcile this asset quality improvement but also access liquidity with your growth perspectives for next year? Thank you.
Sure.
Speaker Change: The specific event of the pension fund is a short-lived event. It has already, all the money has been deployed to clients.
Speaker Change: Some of it is still retained in accounts, so they could use more of that money if they wanted. The actual effect, direct effect, has been considerable, but not the only reason why we've seen this decrease in cost of risk.
Speaker Change: So, what we're expecting is that this will fade out, as it has done before.
Speaker Change: Remember, this is like a seventh withdrawal from pension plans, so we've seen this dynamic before.
Speaker Change: But at the same time, when we think about what's going on...
We are expecting, and we are actually seeing...
Speaker Change: growth in employment in the country, which is also very important. The last number for Lima for the last quarter was a 5% increase.
in formal employment.
Speaker Change: We have leading indicators on payroll payments that are very strong right now.
Speaker Change: So what we're seeing is that this liquidity has given some air to people that were in a very tight position.
Speaker Change: but it is working at the same time as an improvement in the economy that should allow this trend that I was mentioning of cost of risk to continue to decrease.
Speaker Change: And maybe just to compliment Alejandro, these central bank figures, the expectations for them is private investment to grow 2% this year and 4% next year.
Speaker Change: Some, as Alejandro mentioned, both micro and macro leading indicators that provide us a lot of confidence that next year should be a better year in terms of the performance of the loan book, in terms of growth, I mean.
Speaker Change: Okay, great. So, next year, like, higher growth, lower cost of risk.
Thank you. Good day.
and Cesar Briceno.
Speaker Change: Question comes from Tito Labarta 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 guidance, you maintain the ROE guidance at around 17% for this year. You are running above that in a very strong quarter in 3Q. So should we, does that imply just
Tito Labarta: normal seasonally in 4Q, so ROE should trend lower to get you down to that 17% or do you think there's upside to that 17% because you're running probably closer to 18% on the ROE. So just to clarify, maybe some color on 4Q and if we should expect a relatively weaker quarter.
Speaker Change: Sure, it is what you said, we always have some seasonality on the last quarter of the year. It happened exactly the same way last year. So that should mean that we're not going to have...
Speaker Change: We cannot analyze a quarter like this one, there's going to be more expenses, but we're thinking that we probably will end up on the upper side of the around 17 mark.
and Cesar Briceno.
Speaker Change: Okay, that's helpful. And then my second question on your margin, you know, so you're running it closer to the high end of guidance, but how do you think about the sensitivity to lower rates, particularly in the U.S. that's now cut rates again. How does the margin get impacted by, you know, lower rates both in Peru and in the U.S.?
Sure. Thank you.
Speaker Change: I mentioned the quarter calculation we have, we've refined it a little bit for this quarter, that a parallel shift of a hundred basis points.
Speaker Change: We'll have an impact on the first year of around 15 basis points on our Margin, and then goes up to around 25% In the coming year because of the duration of the portfolio the full effect is felt in in
and Cesar Briceno.
in a longer period.
So, that is, if we don't do anything...
Speaker Change: As you've seen, even though rates have been coming down for a little bit, we have been able to sustain a strong and actually a little bit growing NIM and expect to continue doing that going forward based on the local funding advantage that we expect to keep growing on that side. And also...
Speaker Change: pricing and the mix in the portfolio. So there is this sensitivity for sure and it is something that we we're going to be facing in the coming months but at the same time
Speaker Change: With the local funding, the mix, and the pricing, we think we'll be able to sustain and actually perhaps improve a little bit our NIM and, more importantly, the risk-adjusted NIM.
Okay, great. Thank you.
and Cesar Briceno.
Speaker Change: And the next question comes from Thiago Batista with UBS. Please go ahead.
Yes, hi guys, thanks for the opportunity.
Speaker Change: I have a question on YAPI. YAPI reached the impressive number of 13 million active users, monthly active users, which is about probably half of the adult Peruvians.
So my question is...
Speaker Change: First, do you think formaldehyde, a kind of bottleneck that could prevent further expansion of IAPI, or no, or you can see the number of users expanding further, even with the high level of formaldehyde in Peru?
Speaker Change: And second, in the 16.5 million targets that we have for 2026, if I'm not wrong, this is including any kind of expansion to Bolivia, Colombia, or the 16.5 is only in Peru.
Speaker Change: Let me answer the second question first. The figure we provided regarding IAPE is only Peru. Even though, as you all know, we are already operating in Bolivia.
Speaker Change: successfully, I would say regarding your first question which is that actually the more relevant question
Speaker Change: Let me go a step back, and you're right, there's a point where the number of yaperos
Speaker Change: Even though we're still growing at around 300,000 to 400,000 yaperos per month, at some point in time,
Speaker Change: There's a limited number of Peruvians. But the strategy, since the very beginning at IAPE, had like a, it was a three, it is a three-stage strategy. First one was to get...
which is...
Speaker Change: to increase usage, as of today, yaperos are using yape on average 44 times a month. And the third stage, which we are already, obviously the three stages were...
Speaker Change: either number of users or usage, but now we're focusing in terms of how income is going to keep growing. And that goes back to my original comment regarding the J-curve in the new features we're launching within JPEG.
Speaker Change: and many more. Thank you for watching. I hope you enjoyed the video. If you did, please click the like button, subscribe to the channel, and leave a comment below.
No, thank you. Thanks.
and Cesar Briceno. Thank you.
Speaker Change: And the next question comes from Brian Flores with Citibank. Please go ahead.
and Cesar Briceno.
Cesar Briceno: Hi team, thank you for the opportunity. On slide number 13.
Cesar Briceno: We see a very improved composition right on the funding cost.
Cesar Briceno: So now, low-cost deposits are at 56% of the funding base.
Speaker Change: Just wanted to hear your thoughts, what is driving this big increase? What is your strategy going forward? And should we also think that these improvements in cost of risk should continue helping results? Thank you.
and Cesar Briceno. Thank you. Thank you.
Thank you very much.
We believe that the increase that you're seeing is...
Speaker Change: mainly due to the transactionality capabilities and the principality we've been developing with our clients.
Speaker Change: For our client-centric approach, we've invested a lot in bringing them all the channels possible to interact with the bank as seamlessly as possible.
What we're seeing is more and more clients
Speaker Change: of that floating and continue to grow on that line. The second question was...
Continue improving it.
Speaker Change: Risk, yes. As I mentioned a little bit earlier, we are seeing a much better trend in the economy both by the things that we did actively and also by the situation and the better
Speaker Change: situation in hiring and growth in the economy. So our view is that cost of risk will continue to decrease regardless of the specific liquidity event that happened with pension funds.
in the last quarter.
Support there, thank you.
Thanks.
and Cesar Briceno.
Speaker Change: Next question comes from Yuri Fernandez with JP Morgan. Please go ahead.
Yuri Fernandez: Thank you, everybody. I would like to explore a little bit the sustainable ROE. In the past Digital Day, you mentioned a target of 18% and you are tracking above it, even though capital has been super strong for the bank.
Yuri Fernandez: So, I don't know, like, looking at 2019, it seems to be a better, kind of a better quality ROE and you are just in the beginning of IAPE and many of those initiatives.
Speaker Change: So, just checking, do you continue to see 18% ROE as your sustainable target, or no? Could we see some upside here?
There are other forces, like for example...
uh
So when we look at the numbers as of now,
Speaker Change: We haven't changed the appetite for investing up to 150 basis points of ROE going forward. That's not a setting stone. We will obviously have a very disciplined, keep our very disciplined approach, but if it's needed, we will keep investing.
Speaker Change: for maintaining our success. And at the same time, we do believe that 18% is a very interesting ROE for our investors.
Speaker Change: No, no, super, super clear. If I may, a second one here, just from Long Grove, because you already mentioned on margins.
Speaker Change: If I got it right, margins should be resilient, even though recurrent.
are coming down.
Speaker Change: But when should we see better low growth? And I know you don't have a guidance yet for 2025, but if you can comment anything on the industry, like better economy, what should we expect? Because this was a little bit shy quarter for growth, right? So just wanted to understand when should we see a better volume in Peru. Thank you.
Speaker Change: Sure, yes, we do expect a growth in loan growth and it comes from a couple of factors. From one side, the improvement in cost of risk also allows us to start to think about being a little bit more aggressive on the lending side because when you think about the reasons for the low loan growth.
Speaker Change: On the wholesale side, it's more of a demand issue in the sense that wholesalers haven't been making long-term investments as of yet.
Speaker Change: I'm sorry, private investment, I'm sorry, growing at around 4 plus percent next year. I mentioned investor confidence being at the highest or actually haven't been this for having been positive for this long since 2019, early 2019.
Speaker Change: So, we start seeing more and more indications that there is a reactivation in the broader economy because GDP has been growing, but more from the primary sectors. Now we're seeing it in a more broader sense. So, those things make us feel that we are going to have
Speaker Change: growth in the in the coming year and we have some calculation we'll give the guidance beginning of next year but we do expect growth to to pick up.
Well, amazing. Thank you very much.
and Cesar Briceno.
Speaker Change: And the next question comes from Carlos Gomez with HSBC. Please go ahead.
Carlos Gomez: I'm going to start by congratulating you on the result and on achieving that detachment from the local economy that you intended to do in January today and you seem to be succeeding at that.
Carlos Gomez: Two specific questions, first on PANMedica, what is the main driver for this transaction? We understand that the shareholder in Chile obviously is going through...
Carlos Gomez: In the long run, you made a strategic decision some time ago to have a partner in this business. Has that changed? Do you want to have this business by yourself or would you consider having a different partner in the future?
Carlos Gomez: The second question is totally different on cyber security. We know that there has been a big leakage of data at a competitor in Peru. Has that affected you in any way and do you think that is something that you have to monitor more? Thank you.
Cesar Briceno.
Speaker Change: As of today, our decision is to run the business by ourselves, bearing in mind that we've run that business, both the health insurance and the health providing business, for several years before doing the joint venture with Banmedica, so we feel quite comfortable.
Speaker Change: to run it by ourselves, and also the whole management team is going to stay running the current operation. So, no plans to...
Speaker Change: to do another joint venture with another operator. Obviously, the future is the future, but as of today, nothing on the table in that sense. I will ask Cesar to answer your second question. Yes. We have been monitoring very closely the event.
It's a sad event for the country, actually.
Cesar Briceno: reviewing the information that we have in relation to that event in relation to our practices, governance.
Cesar Briceno: And so far we feel comfortable that the government structure and investment we have been doing, but we strive to continue to improve our capabilities in this regard due to the growing trend in this kind of attacks and events globally.
Speaker Change: We haven't been affected, Carlos. No, we have not been affected.
Thank you so much.
Speaker Change: And the next question comes from Tejon K.M. with White Oak Capital. Please go ahead.
Tejon K.M.: Hi, thank you for the opportunity. Just wanted to confirm my understanding, I think you commented on this before, the improvement in asset quality, do you see any positive trends in your clients beyond the impact of pension fund withdrawals?
Speaker Change: Yes, we do. As I mentioned, we are seeing a lot of improvement in the economy.
Speaker Change: in the hiring, purchasing power of people in the country. So all of those dynamics should start to bring...
the Costa Rican town.
Speaker Change: with pension plans. What might happen is that the speed at which it has decreased in this quarter
Speaker Change: might change a little bit in the coming quarters, but we are seeing...
Speaker Change: an improvement in the more fundamental part of the situation of our clients.
regardless of this specific event. And just as a comment...
Speaker Change: but yet the cost of risk in Vivanco has improved in a very important way. So those are the types of things that we also consider when we're thinking about the trend in cost of risk.
Speaker Change: And one fundamental issue is the macro, in terms of GDP, but also inflation, that has helped, particularly in the consumer segment, the reduction in inflation has been a powerful positive force.
Speaker Change: our capacities in terms of collections and rescheduling. And this is going to continue, but this is a fundamental trend. And the effect of the pension funds has had two different impacts. One very directly regarding...
Speaker Change: very specifically the event, and has also impacted positive clients that have reduced a little bit their volumes because clients with conditions have used the funds to reduce.
So, we have two.
Speaker Change: main or fundamental trends that are going to continue, but even the third part has helped us to identify clients with high propensity, willingness to pay, and we are actively rescheduling them.
Speaker Change: Thank you. Thank you very much. Really appreciate your answer. Just a follow up on this pension fund topic.
Speaker Change: During the pandemic, when three or four rounds of this happened, I believe you commented that because these pension funds are now selling long-term assets to meet the withdrawals, it led to an impact of long-term yields going down. Do you expect that to affect your interest margins in the fourth quarter or maybe early 2025?
I didn't get the question, long-term what, coming down?
Along the Meads
and Cesar Briceno.
Longa, can you hear me?
Speaker Change: Due to the fact that pension plans are coming out of the market, you mean?
Yeah, yeah, yeah.
Yeah, no, we don't see really such a big...
impact there.
Speaker Change: Yes, they are less active in the market while they are recomposing their portfolio, but they will come back. After this reform that Franco mentioned earlier, pension plans should continue to grow and should continue to be an important player in the market. So we are not expecting any fundamental changes in...
in the yield dynamics in the market.
Speaker Change: If I have time, just one last quick question. I think Pacifico has been helping ROEs strongly for 2-3 years now. I really appreciate the strong performance. You mentioned 20% as your target for the microfinance business. Would it be possible for you to provide any color on what are your cross-cycle expectations for the insurance business?
and Cesar Briceno.
Speaker Change: So, specifically for Pacifico, which, as you just mentioned, has been outperforming, we mentioned it before, we expect to be in the 20s. So that's the sustainable highway at Pacifico.
Got it. Thank you very much and congratulations
Thank you very much.
Speaker Change: Good morning, Giofranco and Alejandro. Thanks for the presentation. I just want to clarify regarding NIM sensitivity. So you mentioned that
Speaker Change: It's a 400 dips of parallel rates, your NIM moves by 15 basis points, is that, are you talking about for both?
Speaker Change: in a dollar portfolio and solace portfolio? Can you give the separate sensitivity for dollar versus solace, please?
Sure, I am talking for both sensitivity...
is a little bit higher on the...
Speaker Change: dollar side that on the solid side because of the duration of the portfolio, but it is not I mean if I'm talking about 15 basis points in the first year, you can think about eight nine to seven six Sensibility in each part of the portfolio, but that is kind of the calculation we have right now
Speaker Change: So it is a little bit higher on the dollar side.
Okay, okay. And then when you said that.
15 basis points in year 1 and 25 basis
Speaker Change: in year two, meaning it's not additional 25 base points, it's a cumulative 25 by year two, right? So if.
Speaker Change: rate move by 100 bips year one and just stay there by year two if you do nothing your NIM should contract by 25 bips. Is that correct broadly?
Speaker Change: If he contracts 100 basis points, it's going to come down 15 on the first year and then all the way to 25 accumulative in the second year. That's right. OK, OK. And then, just final question, so...
you know
Speaker Change: Just looking at the slide on page 6, where you show the central bank policy rates.
Speaker Change: Peruvian rates, according to the chart, start coming down at the end of 2023.
Speaker Change: So you already had almost a year of lower rates in Peru and then in the U.S. they just started coming down just last quarter or just September I think.
So, what's your...
Canava.