Q4 2024 Credicorp Ltd Earnings Call

Good morning, everyone. I would like to welcome you to the Credit Corp. Limited fourth quarter 2024 conference call.

A slide presentation will accompany today's webcast, which is available in the investor section of Credit Corp's website.

Today's conference call is being recorded. As a reminder, all participants will be in 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 are 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: Now it is my pleasure to turn the conference over to Credit Corp's Iordo Milagros Ciguenas. You may begin.

Speaker Change: 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.

Cesar Rios, Chief Risk Officer

Diego Cabello, Head of Universal Banking

Cesar Rivera: Cesar Rivera and Carlos Otello, my bank, Cesar Rivera, Pacific CEO and Carlos Otello, my bank, chipanasha.com

Cesar Rivera: Before we proceed, I would like to make the following safe harbor statement.

Cesar Rivera: 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.

Cesar Rivera: and I refer you to the forward-looking statements section on our early release and recent filing with the FEC.

Cesar Rivera: We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances.

Cesar Rivera: Gianfranco Ferrari will start the call with remarks on a brief overview of our results and business strategy development for 2024.

Gianfranco, please go ahead.

Cesar Rivera: Thank you, Milagros. Good morning, everyone. I'm very pleased with our full year results, delivering record profitability of 5.5 billion soldes and an ROE of 16.5%, which equals 17.2 aligned to our guidance.

when excluding one-off charges related to the Sartor case.

Cesar Rivera: Operationally, the fourth quarter was robust, with improved cost of risks at BCP and Mibanco, increased lending, and exceptional transactional volumes at BCP and IAPE.

Cesar Rivera: providing a strong foundation for sustained growth in the years ahead.

Cesar Rivera: These achievements underscore the impact of our strategic initiatives, which have strengthened resilience, enhanced efficiency, and reinforced our competitive advantages.

Cesar Rivera: This enables us to navigate periods of volatility effectively while capitalizing on market opportunities to drive future growth and further advance our strategy of decoupling from the macroeconomic cycles.

Cesar Rivera: Inflation fell to 2.2 percent, its lowest level in four years, as the Central Bank lowered its policy rate to support the recovery.

Cesar Rivera: Improved weather boosted fishing, primary manufacturing, and agriculture, while strong copper and record high coal prices further supported economic performance.

Cesar Rivera: Despite gains from increased public investment, private sector investment remains subdued.

Cesar Rivera: Achieving long-term sustainability growth will require political stability, responsible fiscal policies, and structural improvements in essential services to fully restore business confidence.

Cesar Rivera: Looking ahead, we expect the Peruvian economy to grow around 3% in 2025, supported by historically high terms of trade, controlled inflation, and continued recovery in real wages.

Cesar Rivera: However, the onset of the electoral campaign toward the end of the year may introduce uncertainty as campaign activities intensify.

Speaker Change: Reported ROE came in slightly below expectations as we chose to prioritize client relationships and mitigate the risk related to the Sartor matter in the fourth quarter.

Cesar Rivera: However, adjusting for this, we would have delivered an ROE of 17.2% in line with expectations.

Cesar Rivera: Our results were primarily driven by strong results at our Universal Banking and Insurance and Pension business.

Vines, alongside continued improved performance at Mi Banco.

Cesar Rivera: This shift enhances our revenue mix, advancing our strategy to diversify revenue income sources with the goal of achieving 10% of risk-adjusted revenues from new businesses by 2026.

Cesar Rivera: Risk-adjusted needs continue to strengthen, underpinned by disciplined interest rate management, a leading low-cost funding position, and enhanced credit risk management.

Thank you.

Cesar Rivera: Client satisfaction also improved with a 5% percentage point increase in average NPS across our businesses.

while these efforts also promote greater financial inclusion.

Cesar Rivera: Lastly, the significant asset quality improvement since late 3Q of 2024 has led us to gradually increase our risk appetite and allowed for a more proactive lending approach at both BCP and Nivanco.

particularly in the retail segment.

reflecting the improved operating conditions.

Please move to slide three.

Cesar Rivera: We are advancing our strategic priorities to proactively address challenges and capitalize on opportunities.

ensuring our long-term competitive test.

Cesar Rivera: These priorities are attracting and retaining top talent through a compelling value proposition, accelerating digital transformation and innovation, and integrating sustainability into our core business strategy.

Cesar Rivera: We cultivate innovating teams with a growth mindset, aligning their purpose with credit cards to unlock potential.

Cesar Rivera: Through continuous training and development, we are making PREDICORP an increasingly agile organization that enhances both efficiency and experience.

Cesar Rivera: Our strong value proposition led to a 12-point employee NPS increase, making Quaker Peru's top employer brand for executives.

Cesar Rivera: Additionally, five of our companies are number one in their respective categories in the MercoTalento Peru reputational ranking.

Cesar Rivera: To further reinforce our identity, we launched CrayCorp Cultures, a strategic framework built on shared values of teamwork and vision, innovation, customer centricity and ethics.

Cesar Rivera: We drive digital transformation and innovation by enhancing AI and cybersecurity capabilities.

Cesar Rivera: Over the past decade, we've advanced data analytics and technology, boosting productivity and customer experience.

Cesar Rivera: AI-driven initiatives, such as improved voice response at BCP Contact Center, have increased self-service interactions to 40%.

Cesar Rivera: Moreover, the implementation of GitHub Copilot among over 1,500 developers boosted productivity by over 30%.

Cesar Rivera: We strengthen internal cybersecurity management, invested in new technologies and improved processes to elevate protection standards.

Cesar Rivera: Recognizing that cybersecurity is an ongoing priority, we continuously monitor and adapt to emerging threats while keeping both employees and clients with enhanced digital security practices.

We integrate sustainability into our strategy to drive meaningful change.

Cesar Rivera: We've also allocated over 1.5 billion dollars in sustainable financing across the agriculture, fishing, energy, and textile sectors.

Cesar Rivera: These are just a few of our many initiatives aimed at improving lives and reducing poverty in Peru.

Cesar Rivera: Looking ahead, we will continue to focus on these three fundamental pillars, talent, digital transformation and sustainability, as key drivers of Credit Corp's long-term success.

Cesar Rivera: Now, let's turn to a summary of performance across our business units and disruptive initiatives.

Cesar Rivera: Our balanced portfolio innovation strategy, including disruptive initiatives, allow Quaker to decouple from the macro and drive resilience, profitability, and long-term value creation.

Cesar Rivera: At BGP, we prioritize customer experience and long-term competitiveness through investments in digital channels like IAPE and mobile banking, which drive exponential transaction growth.

Cesar Rivera: We now have 36% digital customers. Our branch modernization efforts, including quick service modules and digital education zones, support this evolution.

Additionally, we improved multi-channel value propositions raised NPS across segments.

Cesar Rivera: MiBanco's performance improved, driven by the broader economic recovery, enhanced risk management, and operational and efficiency improvements.

Cesar Rivera: Our hybrid models help navigate an acute cycle in Peru's microfinance system.

Supporting clients with great facilities and training.

Cesar Rivera: We shifted to lower volume, higher profit grade tickets, improved monitoring and collection, and implemented more effective risk control than our peers.

We also attracted savings, diversifying income and strengthening resilience.

Cesar Rivera: Looking ahead, we're exploring additional synergies with Credit Corp. to drive further structural improvements to achieve our minimum target of 20% of ROE.

Cesar Rivera: Pacifico served our over 6.5 million clients in 2024, expanding its offerings through commercial partnerships and leveraging the Credit Corp ecosystem with a particular focus on retail via Bank Assurance and Yapping.

Cesar Rivera: We developed a new strategic alliance, including a collaboration with Falabella in embedded insurance.

Speaker Change: At Craycon Capital, we recover income and profitability driven by capital markets and wealth management, with growth in assets under management.

These results reaffirm the strength of our strategic approach.

Speaker Change: Following the Chilean Financial Markets Commission's intervention of Sartor, a third-party fund manager, we prioritize client interests by proactively protecting their investments in our factoring funds.

Speaker Change: While we expect a partial recovery of funds, our actions reaffirm our commitment to long-term client relationships.

Speaker Change: We continue to drive revenue growth through our consolidated innovation strategy. YAPE, now Peru's most recognized brand, reached profitability in 2024 with nearly 14 million active users.

Speaker Change: As the leading payment platform, Yepe has nearly doubled its transaction volume in 2024.

Speaker Change: expanded credit access with 1.8 million users with credit and became Peru's fifth largest e-commerce player.

Speaker Change: In Bolivia, IAPE has emerged as the top digital wallet with over 1.2 million active users.

Speaker Change: Créalo, our corporate venture capital arm, remains at the forefront of innovation, with Tempo in Chile set to become the country's first neobank, already serving over 750,000 users.

Speaker Change: Strategic internal collaborations like Monoquera, a platform linking insurance to digital channels, is enabling IAPE to become a digital insurance distributor for Pacifico.

Speaker Change: With that, I will now turn the call over to Alejandro, who will go into the highlights of the quarter and provide further detail on the macroenvironment, each of our operating businesses and our consolidated results. Alejandro?

Thank you Gianfranco and good morning everyone.

Speaker Change: As Gianfranco mentioned, we delivered solid operating results in 2024 and are well positioned for a strong 2025.

Speaker Change: Our 16.5% ROE was negatively impacted by a 259 million soles one-off related to the Sartor case this quarter.

Excluding discharges, the ROE would have been 17.2%.

Speaker Change: As I discuss the quarter's highlights, I will focus on the quarter-over-quarter results to emphasize recent shifts in Q operating trends.

Speaker Change: Loans expanded 0.7% measured in average daily balances and 2.2% in quarter end balances.

Speaker Change: This expansion was primarily driven by short-term corporate loans, government program loans at SME business, and mortgage loans.

Speaker Change: Asset quality further improved this quarter. The NPL ratio dropped 60 basis points to 5.3%, driven by BCP and MiBanco.

Speaker Change: At BCP, the NPR contraction was led by SMEs and wholesale clients.

Speaker Change: Provisions fell 14.4% fueled by improvement in payment performance after the risk management measures of both BCP and Ivanco continue to bear fruit.

As a result, the cost of risks fell to 2.1%.

Speaker Change: Net interest income increased by 1.1%, primarily driven by a decrease in interest expenses via a drop in interest rates and by growth in low-cost deposits, which now represent 56.4% of the funding base.

Speaker Change: The yield on interest-earning assets, however, fell 20 basis points as the asset mix shifted towards cash and equivalents and market interest rates dropped. Consequently, MIM fell 9 basis points to stand at 6.3%.

Speaker Change: Non-interest income expanded this quarter, however, fee income contracted slightly, by 0.4%, due to a drop in brokerage results at credit card capital.

Speaker Change: This evolution was offset by a 29.4% increase in gains on FX transactions, which was boosted by BCP Bolivia and BCP.

Speaker Change: Lastly, the insurance underwriting results rose 7.2%, reflecting a stronger reinsurance result in the PNC business.

Speaker Change: All in all, we delivered ROE of 13.3% this quarter, supported by steady revenue dynamics and asset quality improvement, but nonetheless impacted mainly by one-off charges and seasonal expenses.

Next slide, please.

Speaker Change: The Peruvian economy struck a more positive note at year-end in 2024, recovering from a contraction in 2023 which interrupted 25 years of constant growth except for the pandemic.

Speaker Change: The economy grew around 4% year-over-year in the fourth quarter of 2024, and 3.2% for the year. And inflation is well-controlled at 2%, one of the lowest figures among both advanced and developing economies.

Speaker Change: Thanks to solid external accounts, the Peruvian Sol is one of the best performing currencies in emerging markets.

Speaker Change: Credit rating agencies have upgraded their outlook for Peru from negative to stable, reducing the risk of a downgrade in the near term.

Speaker Change: In 2025, the economy is expected to transition from early stage to mid-cycle recovery.

Speaker Change: Some indicators that this phase has begun are already evident. For example, recovery has broadened to include laggards such as car sales, local sales tax revenue, and imports, which are now experiencing growth.

Speaker Change: Additionally, employment and real wages continue to gradually recover, and according to the Central Bank survey, investment expectations have recently accelerated and stood in the optimistic range throughout the second half of the year, and a moderate improvement in prior investment is anticipated.

Speaker Change: We expect the Peruvian economy to grow around 3% for a second consecutive year in 2025, despite uncertainty on the global front and a pre-electoral environment in Peru.

Speaker Change: Dinamism should continue to pick up in the first half of the year.

Speaker Change: Finally, we anticipate GDP growth of 2.4% in Chile and 2.1% in Colombia.

Thanks a lot.

Thank you. Thank you.

Speaker Change: Expectations for federal reserve rate cuts have diminished, with some analysts even suggesting that the cuts are over. President Trump's recent announcement aligns with his campaign promises and underscores his administration's intent to leverage tariffs as negotiating tools.

Speaker Change: Consequently, increased market volatility is anticipated during his presidency due to heightened uncertainty.

Speaker Change: In Peru, as mentioned earlier, inflation is under control at 2%.

Speaker Change: The Central Bank has cut its policy rate 300 basis points since September 2023 and is expected to implement one or two additional rate cuts throughout the year as it approaches its neutral level.

Speaker Change: In Colombia, inflation ended the year at 5.2% year-over-year, remaining above the upper limit of the target range of 4%.

Speaker Change: Finally, in Chile, markets have priced in only one additional ratio. The Chilean peso has depreciated around 6% since September, and last month the exchange rate reached its highest level since 2022.

Next slide, please.

Cesar Briceno, Gianfranco Casas, Milagros Cigeas, Alejandro Perez, Alejandro Perez,

Speaker Change: BCP registered full-year ROE of 22%. This strong performance was mainly driven by resilient margins amid a shift in the loan portfolio to retail and solid transactional funding, alongside diversified income streams.

Speaker Change: On a quarterly basis, ROE stood at 20.1% driven by the following quarter-over-quarter dynamics.

Speaker Change: Total loans, measured in average daily balances, rose 0.9%, rebounding on the back of improving macro conditions.

Speaker Change: Growth in average daily balance was driven mainly by an uptick in short-term corporate loans, particularly to the mining and energy sectors.

Speaker Change: The SME business and mortgage segment also contributed to loan growth.

Speaker Change: NPL volumes fell 9.6%, mainly driven by a drop in overdue loans in SMEs, debt repayments in wholesale banking, and an increase in write-offs and debt repayments in consumer and credit cards.

Meme decreased 20 basis points to stand at 6%.

Speaker Change: This decline was driven by growth in cash and corporate loans, coupled with a drop in market interest rates, both of which pressured the average asset yield downward.

Speaker Change: Other income in contrast grew 1.9% on the back of FX transactions.

which were bolstered by corporate transaction volumes.

Speaker Change: Fee income also contributed to income growth, driven mainly by record high transactional levels at IAPE, while debit and credit card activity at BCP remained at solid levels.

Speaker Change: The cost of risk filtered to three basis points to stand at 1.8%.

Speaker Change: The contraction in provisions was driven primarily by SME PYME and mortgage portfolios.

Speaker Change: In SME Payment, provisions dropped due to an improvement in payment performance, which reflected improvements in the portfolio's average risk profile.

Speaker Change: In mortgage, the contraction was due to parameter updates to our risk models and to strengthen payment capacity in individuals.

Speaker Change: The Consumer and Credit Cards, in contrast, reported a nap-kick in provisions due to a risk model calibration. It is important to note that underlying risk has improved for both products.

Speaker Change: Payment performance improved mainly after healthier vintages increased their weight within portfolios and rescheduling efforts were ramped up. In this context, BCP's risk-adjusted need stood at 4.9 percent.

Speaker Change: BCP's asset quality metrics have improved due to risk management measures, such as adjusting credit guidelines in high-risk segments, fine-tuning credit processes, and calibrating specific models to better predict losses.

Speaker Change: We will gradually increase risk appetite in certain segments with street monitoring and a disciplined risk-return approach.

Speaker Change: From a full year perspective, I would like to highlight the following dynamics.

Speaker Change: Loans decreased 0.7% in average daily balances, driven mainly by a drop in wholesale loans, where demand for long-term financing remains weak.

Speaker Change: NIM rose 30 basis points to stand at 6%, bolstered by an improvement in the funding cost, which was positively impacted by lower interest rates and growth in low-cost deposits.

Speaker Change: An uptick in the yield on interest-earning assets also contributed to growth in NIMA.

Speaker Change: Other core income rose 15.2%, as fee income was boosted by IAPES consolidation as a key revenue stream and BCP's strong transactional activity.

Speaker Change: Additionally, gains on FX transactions rose via an uptick in volumes and better pricing in retail and wholesale clients.

Speaker Change: Deficiency ratio stood at 39.3% for a year due to higher operating expenses and slower operating income growth. Salaries and employee benefits increased alongside an uptick in variable compensation, which rose on the lack of better business performance.

Speaker Change: Technology costs increase time in hand with an uptick in the transactional volume.

Speaker Change: It is worth noting that the other core income-to-assets ratio remains high, illustrating the increasing diversification of BCP's income streams.

things like this

Speaker Change: YAPE reported close to 14 million active users, around 69% of the economically active population. Today, YAPE is on track to achieving its target of 16.5 million active users by 2026.

Speaker Change: Revenues grew alongside and uptick in the use of features. By quarter-end, monthly revenue per active user reached 6.5 soles.

Speaker Change: Revenue generation outpaced growth in expenses despite seasonal charges related to marketing campaigns and IT expenses.

Speaker Change: Four quarters seasonality expenses were anticipated in line with results in previous years. Consequently, monthly expenditures per active user stood at 5.3 soles.

Speaker Change: Yapen's payment business is the up-front runner for revenue growth and year-over-year growth was primarily attributable to bill and QR code payments and Yapen for Business.

Over the period, the total payment volume rose 1.9 times.

Speaker Change: In the financial business line, revenues were mainly obtained from floating, while loan disbursement continued to grow exponentially.

Speaker Change: Year over year, loan disbursements rose 7.3 times as YAPE focused on loans with higher tickets and durations.

Speaker Change: By the end of the fourth quarter, loans have been granted to 1.6 million Llaperos and we are well on our way to reaching our target of 5 million Llaperos with a loan disbursed by 2026.

Speaker Change: Finally, our e-commerce business has boosted customer engagement. This is reflected in the gross merchant volume, which grew three times year-over-year, mainly through YavePros.

Speaker Change: In 2025, IAPE will enhance its software with new features and improve its value proposition.

Speaker Change: We will develop and implement new risk models to expand our lending business while maintaining the highest standards of security and stability.

Next slide, please.

Speaker Change: After a challenging year, marked by a complex credit cycle for the microfinance industry, Mi Banco Peru is recovering profitability among improved credit risk management and a reduction in the cost of funds.

Speaker Change: Fourth quarter ROE contribution rose to 17.3% as we move closer to our target levels of profitability.

Speaker Change: I would like to highlight a quarter or a quarter dynamic.

Speaker Change: Despite hitting a turning point this quarter, as we probably ramped up disbursement of small ticket, higher yield loans, gains were overshadowed by a decrease in higher ticket loans.

Speaker Change: The NPR ratio fell for the third consecutive quarter and improved at a faster pace than our peers.

Speaker Change: This evolution, which was driven by a reduction in overdue loans, reflects the positive impact of tighter adjustments in origination guidelines, debt relief facilities, and improvement in debt collection processes.

Speaker Change: NIM rose 30 basis points to 14.2%, boosted by a drop in the cost of funding after the funding rate declined.

Speaker Change: Cost of Risk fell 154 basis points to stand at 4.7%, driven by improved payment performance and risk-adjusted needs to 10.7%.

Speaker Change: Improvements in MiBank's quality metrics reflect discipline-grade processes, including origination restrictions and stricter monitoring of the performance of systems.

Speaker Change: From a full year perspective, I would like to highlight the resilience of MiBank of NIMH, which was buoyed by active loan pricing management and a decrease in the cost of funding.

Speaker Change: Improvement in risk management processes led to a decrease in cost of risk.

Speaker Change: Finally, operating expenses remained under control with efficiency standing at 52.7%.

Speaker Change: In this context, Ivanko's full-year contribution to ROE stood at 10.9% in an accumulated basis.

Speaker Change: Going forward, we expect profitability to continue to improve as healthy lawn growth resumes and newer and lower-risk vintages increase their weight in the mix.

Speaker Change: Mi Banco Colombia's result improved significantly thanks to a focus on efficiency and disciplined risk processes and controls, despite a challenging business environment. This helped us become the third-largest private microfinance lender in Colombia.

left like this.

Speaker Change: Grupo Pacifico concluded 2024 with another year of remarkable performance, achieving an ROE of 23.7% on the back of solid commercial dynamics in both the P&C and live business.

Speaker Change: On a quarterly basis, ROE stood at 20.5%, driven by the following dynamics.

Speaker Change: Net income dropped 10%, primarily impacted by an increase in the net loss on securities impacted by one credit downgrade in the investment portfolio, and by higher operating expenses due to seasonality.

Speaker Change: Insurance and their revenue results rose 22% on the back of an improvement in both business lines explained by Credit Life, CARS, and P&C Risk.

Speaker Change: From a full year perspective, in 2024, Grupo Pacifico delivered strong performance.

Speaker Change: Net income slightly dropped 5%, mainly driven by lower insurance underwriting results due to normalization of underwriting margins in the live business, which was partially mitigated by strong performance in PNC and higher operating expenses attributable to investments to strengthen Pacifico's digital case viability.

just like this.

Speaker Change: Operating dynamics have been strong throughout the year for investment management and advisory, which affirms that our new strategic approach is on target and puts us in good stead for 2025.

Speaker Change: My Nigeria LROE for a lot of business came in at below expectations due to our decision to prioritize client relationships and mitigate the risk related to the Sartor matter in the fourth quarter.

Speaker Change: Excluding one off related to the Sartor case, ROE stood at 15.3% in a full year basis.

Speaker Change: I will go through operating trends that draw from a Nigeria fourth quarter ROE of around 10.9% which excludes one-off charges.

Speaker Change: and a drop in trading results in our capital markets business due to market dynamics.

Speaker Change: From a full year perspective, net income rose 15%, led primarily by sales activities in our capital markets business.

Speaker Change: Our Wealth and Asset Management businesses also contributed to growth in net income, where AUMs climbed 16% and 18% in US dollars respectively.

Speaker Change: These dynamics were partially offset by a drop in treasury resources.

Next slide, please.

Speaker Change: Now I would like to review Credit Cords Consolidated Evolution, beginning with the quarter-over-quarter dynamics for the balance sheet.

Speaker Change: On the asset side, as previously mentioned, loans resume growth, but mainly in lower-yielding corporate loans.

Speaker Change: Meanwhile, cash and equivalents maintained an upward trend in a context of ample liquidity.

Speaker Change: The shift toward lower yielding assets resulted in a 20 basis point drop in the yield on interest-earning assets.

Speaker Change: On the liability side, lower interest rates and growth in low-cost deposits continue to be at a slower pace than in previous quarters, contributing to a decrease in the cost of funding.

on a full year basis.

Speaker Change: Interest-earning assets rose 7.2%, mainly driven by cash and equivalents, in a high-liquidity environment. In the meantime, we have slightly increased the duration of our investment portfolio to safeguard our interest income.

Speaker Change: Lower interest rates and growth in local deposits led the funding cost to drop 17 basis points.

Speaker Change: Going forward, improving macroeconomic conditions should bolster lending as excess liquidity contracts, which will help us sustain a resilient NIM despite lower interest rates.

Next slide, please.

Speaker Change: Moving on to Loan Portfolio Quality, NPL fell 8.3% quarter over quarter driven by both BCP and MiBank.

Speaker Change: It is important to note that NPL volume this quarter continued to drop after reaching a turning point in the third quarter, particularly in the segments most impacted by the recent credit cycle, individuals and the SME portfolio at BCP, as well as MiBanco's portfolio.

Speaker Change: The improvement in the payment performance, coupled with successful risk management measures at both BCP and MiBanco, led provisions to drop 14.4% quarter over quarter, while the cost of risk decreased 34 basis points to stand at 2.1%.

Speaker Change: In this context, the NPL-CORAS ratio rose 566 basis points quarter over quarter to stand at 104.3%.

Next slide, please.

Speaker Change: Let's move on to analysis of our income and expenses. Core income rose 1.7% quarter over quarter, driven mainly by NII and FX gains.

Speaker Change: NII expanded on the back of a reduction in interest expenses. FX gains were boosted by better results in Bolivia and by growth in FX volumes for corporate clients at BCP.

Speaker Change: In terms of margins, NIM decreased 9 basis points to stand at 6.34%, while risk-adjusted NIM rose 15 basis points to stand at 5.08%.

Speaker Change: On a full year basis, core income grew 9.6%, which is evidence of our ability to sustain growth as we seize opportunities in a more dynamic environment.

Speaker Change: Regarding margins, we achieved a NIM of 6.29%, with a record high risk-adjusted NIM of 4.77%.

Speaker Change: We analyze expenses and efficiency on a full year basis. Operating expenses rose 9.3 percent, driven primarily by core businesses at BCP and disruptive initiatives at a critical level.

Speaker Change: Expenses for disruptive initiatives at the critical level rose 27.1%, mainly fueled by IAPE via technology and systems-related expenses and by transactional costs.

Speaker Change: Finally, an uptick in operating income and accelerating operating expenses led the efficiency ratio to drop 33 basis points to stand at 45.8% for the year.

Let lie please.

Speaker Change: Credit Card Full Year Profitability was fueled by strong results at our Universal Banking and Insurance businesses, and our gradual recovery on the microfinance side.

Speaker Change: ROE for the full year 2024 stood at 16.5%. It is important to highlight that consolidated net income in 2024 represented a record high for our company despite an environment of low growth and high cost of risk.

Speaker Change: These results demonstrate our ability to adapt to challenging circumstances, supported by our diversified sources of income, in line with our decoupling strategy.

Now we will move on to our guidance.

Just like this.

Thank you.

Speaker Change: As previously mentioned, we expect the GDP to grow around 3% in 2025.

Speaker Change: Regarding loan growth, we expect our total loan book, measured in average daily balances, to grow around 3.5%, driven mainly by retail banking at BCP and MiBanco.

Speaker Change: This growth is equivalent to around 6% growth measured in quarter end balances.

Speaker Change: The ongoing shift of our loan book towards a higher yield mix and stronger loan growth should ensure a resilient MIM despite potential policy rate reductions in soles and dollars down the line.

Speaker Change: Accordingly, we expect NIMH to stand between 6.2 and 6.5 percent.

Speaker Change: The cost of risk guidance is between 2% and 2.4%. This range reflects the recent improvements in asset quality indicators, as well as the shift of our loan portfolio mix towards future.

Given this expected dynamic for NIMH and cost of risk

Risk-adjusted NIMS should stand between 4.8% and 5%.

Speaker Change: In 2025, we will continue to invest in digital transformation and disrupt eruptive initiatives to bolster our long-term competitive position.

Speaker Change: As mentioned in our earnings release, starting in 2025, we are adopting an accounting policy change related to our loyalty program. Considering this adjustment, we expect the 2025 efficiency ratio to situate between 45% and 47%.

Speaker Change: It is worth noting that the impact of this adjustment is a reduction of about 80 basis points in our cost to income.

Speaker Change: Regarding non-interest income, we expect the income growth to pick up and stand in the low double digits in 2025 as activity accelerates and our efforts to further diversify sources of income gain traction.

Speaker Change: Additionally, insurance underwriting results should remain solid and relatively stable against 2024.

Speaker Change: Given the formation dynamics, we expect our ROE to stand at around 17.5% for a full year.

Speaker Change: With these comments, I would like to start the Q&A session.

Thank you. Thank you. Thank you.

and Cesar Briceno.

Speaker Change: Thank you. 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.

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.

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.

Speaker Change: We will pause just a moment to allow everyone the opportunity to ask questions.

Speaker Change: We also ask that you please ask only 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.

Speaker Change: But again, please only ask one question at a time. Thank you.

Speaker Change: And today's first question comes from Ernesto Gavallino with Bank of America. Please go ahead.

Speaker Change: Thank you. Hi, good morning Gianfranco, Alejandro, Francesca, Cesar, Milagros and good morning to all your team and thanks for the opportunity to ask questions.

My first question will be on the political side.

I know that it's still soon on the presidential elections.

Speaker Change: but which other political parties that could be in the next election, how should we think about the left, radical and right parties?

Speaker Change: Any caller on this I think will be very helpful. And related to this, what tends to be the long road for the industry and for Credit Corp. one year ahead of the presidential election?

Cesar Briceno: Cesar Briceno, Gianfranco Casas, Milagros Cigeas, Alejandro Perez Cesar Briceno, Gianfranco Casas, Milagros Cigeas, Alejandro Perez

Speaker Change: Good morning, I guess I'll take the first question. Actually, as you said, it's too soon to tell. There might be anything between 30 to 40 candidates. So, as of today,

It's actually a raffle.

Speaker Change: So, I wouldn't venture myself in saying, in providing any color.

As you can imagine, if there are 30, 40 candidates,

Speaker Change: We are totally conscious that it is a very relevant issue, obviously for us, but also for you as investors. As we get closer and have a much more clear vision on what may happen, we will share that with you.

Alejandro: I'll ask Alejandro for the second part of the question. Sure.

Speaker Change: We are not expecting a high impact from the election process for most of the year. This starts to happen late in the year, considering elections are in April of 2026.

Speaker Change: There's a lot of candidates, so there's going to be more clarity towards the end of the year.

Speaker Change: So, going to the specific question, what we're seeing for the industry of loan growth for the banking industry is around 5.5% growth. In our case, we're expecting to grow above the market for a year.

Speaker Change: I mentioned earlier around 6%, probably a little bit more. It's going to depend on some factors and international volatility, but we're expecting a good year for 2025.

Speaker Change: Perfect. And then for my second question will be on your sustainable ROE.

Speaker Change: So, you are getting around 17 and a half for this year.

Speaker Change: But when do you expect to normalize OPEC's growth from the disruptive initiatives and how should we think about the ROE in the next two years, like around 2027?

Speaker Change: Yeah, Ernesto, as we mentioned before, what we expected of Sustainable ROE is to be around 18%. We're very confident that we will achieve that tier by 2026.

Speaker Change: Basically, because the main lever for that is that we expect that, actually, from 2025,

I know the words.

Speaker Change: that the disruptive initiatives as a whole will generate a positive impact on the ROE. So yes, the answer is by 2026 onwards, we expect to be operating at an ROE of around 18%.

which is the sustainable ROE we expect.

Okay, perfect. Thank you very much.

Cesar Briceno, Gianfranco Casas, Milagros Cigeas, Alejandro Perez

Renato Maloney: Thank you. And our next question today comes from Renato Maloney with Autonomous Research. Please go ahead.

Renato Maloney: Hi everyone, thanks for taking the question here. So I think the tighter credit origination policy has contributed a lot to the improvement in asset quality.

Renato Maloney: So I'm wondering here, what gives you conviction that you can already restart?

Renato Maloney: originating and grow next year with and still maintain the same asset quality level provisions level and then still connected to this right the guidance also implies a mixed shift towards consumer allowance

Renato Maloney: and but at the same time a lower or similar provisioning cost of risk here so just trying to reconcile these two as well. Thank you.

Cesar Briceno: Maybe I'll take the broader vision and ask Cesar to go into the details.

Cesar Briceno: What gives us confidence is that the macro environment is in a much better position nowadays as compared to...

Cesar Briceno: prior to the pandemic. So the overall macro environment is positive.

Cesar Briceno: that's the macro answer and on the more specific answer, all of our bad vintages, all vintages sorry, which had a higher NPL ratios have been digested and the new vintages, the new originations

Cesar Briceno: have a much better performance. So that's the reason why we feel quite comfortable going forward. I don't know, Cesar, if you want to add something. Yes, probably add something to try to reconcile how is that possible. I think it's a change in the composition.

Cesar: We expect to have a cost of risk in the range that we are provided, but with different composition that implies that we are going to have this kind of cost of risk with much higher yield.

Speaker Change: Because the old vintages have been digested, for some time we have been originating loans with a lower cost of risk, and gradually we are starting to originate higher yield, higher cost of risk, but in a more tighter control range.

That's it. Thank you.

Speaker Change: and many more. Thank you for watching. I hope you enjoyed this video. If you did, please subscribe to my channel. I post weekly videos on a weekly basis. I hope you enjoyed this video. I'll see you in the next video.

Brian Flores: Thank you. And our next question comes from Brian Flores at Citi. Please go ahead.

Brian Flores: Hi Tim, thank you for the opportunity. Just wanted to touch upon the provisioning of SARTOR. So, can you open a bit more on the details as to the level of provisioning? Also, what is the base case regarding the evolution of the case?

Speaker Change: I know you entered into a factoring operation, so just what is like the base case you were already discussing internally? And finally, just to confirm if the impact of the operation is directly in CREA Corp Capital.

Speaker Change: It's not at the credit or capital level, so we've done...

Speaker Change: in the fund, which are at Atlantic Security Holdings, which is a holding for the group. And we have also a small provision for a loan that was given to another related SARTOR fund.

at Atlantic Security Bank, so he's not there.

Speaker Change: We feel comfortable with the level of provision we have done, with the information we have seen so far. You have to bear in mind that...

Speaker Change: this company is under intervention. It has a liquidator, so they are managing most of the things. But we think that the level of provision we have done should allow us to not have to raise any.

Speaker Change: It's still early in the process, so we'll have to wait and see for the liquidator and information they might give us to have a clearer sense of how is the collection going along.

Speaker Change: Do you expect it to be resolved by 2025 or do you think it's something that could go beyond that?

Speaker Change: I mean, at this time, as I said, it's hard to tell. This is a factoring fund, so...

Speaker Change: As to the best of our knowledge today, the economic impact we expect overall has been registered last year in the provisions we made in the fourth quarter of last year.

Yeah.

Super clear, thank you.

Speaker Change: Thank you. And our next question comes from Tito Loboto with Goldman Sachs. Please go ahead.

Tito Loboto: Hi, good morning. Thanks for the call and taking my question. My first question is just on the efficiency ratio, the guidance.

Speaker Change: implies stable to actually a little bit weaker. So just understand that because, you know, YAPE is already profitable there, you know, some of these digital initiatives should begin to pay off. So just understand why you expect.

Thank you.

Sure, so yeah basically the guidance we've given is...

Speaker Change: It implies similar levels, as you say, maybe a little bit of potential deterioration.

Speaker Change: We are still investing in an important way, both in innovation and also in the core business in developing some capabilities. We have important projects in risk, also in our mobile banking, among others. So we see...

Speaker Change: It is important for us to keep investing to maintain our competitive advantage in the market. Having said that, it is something that we look very closely into. For example, this year we ended up slightly below guidance, as you've seen, and just to give you a little bit more color on how much we're looking into that.

Speaker Change: As management, for example, our goal comes below the guidance that we've given. That's an internal guidance. So the logic behind it is...

Speaker Change: We think we need to do these investments, but we want to do them as efficiently as possible and are aiming to get ideally on the lower side of the range and keep the cost-to-income stable.

Gianfranco Ferrari: Tito, this is Gianfranco, maybe just to compliment Alejandro, bear in mind you mentioned Yape.

Speaker Change: Bearing in mind that, Jape, you're correct, it's profitable and profitability this year is going to be much higher than...

and Cesar Briceno, Gianfranco Casas, Milagros Cigeas, Alejandro Perez

I don't know if I was here.

Speaker Change: Yeah, no very clear. Thanks Gianfranco for that. So I guess you know we should expect efficiency to get to that 18% longer tomorrow We we should begin to see efficiency improving in 2026

Speaker Change: I think if that makes sense. And then just a second question on the insurance.

Speaker Change: Thank you Gianfranco, you also mentioned you expect insurance results to be stable, I mean ROE this quarter.

Speaker Change: with a bit lower than it was for the full year. Just what do you think is the right level of ROE for the insurance business from here? Thank you. Yes. Yes. What we're expecting is low 20s in the future. As we mentioned in previous calls, insurance business has had two exceptional years.

Speaker Change: for specific reasons related to the special fund insurances. We do not expect that to be sustainable going forward. So we expect insurance business to operate at ROEs of low-grade, around low-grade.

Okay, very clear. Thanks, Gianfranco.

Speaker Change: Thank you. And our next question today comes from Nicholas Rebo with Bank of America. Please go ahead.

Nicholas Rebo: Thanks very much Gianfranco and Tim for the chance to ask questions. I have two questions on the bonds of both BCP and Craycorp. First on BCP, you have the TR2s, the 2030s, that you can call.

Nicholas Rebo: A bond which I believe is, which matures in June for 500 million dollars. If you can discuss the refinancing plans for that bond as well, if possible. Thanks.

Speaker Change: I'll start with the second one. We are thinking about letting it mature and not refinancing it. We took it at a time where it made sense because of the price and the volatility in the world, but as of now there's no need to maintain that debt for Credit Corp.

Speaker Change: For BCP, we are looking at our capital and the best way to manage those bonds, so we are assessing what to do in the market, and we'll let you know when we have a decision in the market.

Okay, thanks very much.

Action.

Speaker Change: Thank you. And our next question today comes from Yuri Fernandez with J.P. Morgan. Please go ahead.

Yuri Fernandez: Hello everyone, good morning. I have a question regarding capital distribution. If you can provide some color on how should we think about payout and dividends.

Speaker Change: a better year for dividends, I guess a 65, 66% payout. So just checking if we should see a similar, you know, shareholder's return. Given growth is not that sound yet. So just checking the box here on dividends. Thank you.

Speaker Change: We are also aiming to have a growing dividend in March, so ideally we will be able to do that this year. But from a policy perspective, the idea is to just not retain any capital that is not needed for the business in the particular year.

Speaker Change: And what is the number like on the correct one that you are working with as the minimum for you to pay the excess?

Speaker Change: I'm sorry? Correct. Ah, yes, it's 11 at BCP and it's 13.5 at Mi Banco.

Thank you.

Speaker Change: Great, super clear. And if I may, just a second follow-up here on IAPET.

Speaker Change: This fourth year usually we see a seasonality on expenses, right, on cost to serve. Just trying to ask you about your 2026 guidance for the new initiatives. I think you had a 10% of your risk adjusted revenues to come from new initiatives.

Speaker Change: The app seems to be on track, so just checking where we are, if you are comfortable, if you can be above the 10%, below, how you are seeing basically the app evolution versus your prior 2026 guidance for the new initiatives. Thank you.

Speaker Change: above 10% at 2026. That is from all disruptive initiatives, that's the way we've defined it, not specifically from YAPI, but of course YAPI is the main contributor for the following years. So yeah, we are tracking to get to that number.

Okay, thank you very much.

Sure.

Speaker Change: Thank you. And our next question today comes from Sergei Dubin with HL. Please go ahead.

Sergei Dubin: Hello. Thanks for the call Gianfranco and Alejandro. Just a clarification regarding loan growth. I think you mentioned on the call that

You're expecting 5% to 6% for the banking industry.

Speaker Change: and then you're showing on your guidance that you're looking at three and a half percent. So I was just not clear whether you're going to be below the industry or in line with industry or how does 3.5 relate to 5 and 6.

Speaker Change: Sure, thanks for the question and for the opportunity to clarify it. We are guided for average daily balances, so not full-year growth. So in average daily balances, it's at 3.5% growth.

Speaker Change: And that is equivalent to around 6% growth in quarter-end balances, basically.

Speaker Change: so that's the continuation. So we're expecting the market to grow 5.5% and ask to grow somewhat above the market this year.

Speaker Change: Understood, understood. Okay and then the second question is regarding this Stradar case that you referred to. So just just to understand

Speaker Change: The press release that you issued on December 30 says that the maximum possible exposure there is $125 million, right, which is about $460 million, and you provisioned

Speaker Change: 259, so roughly 55% of that, so is it your belief that your provision...

Speaker Change: would fully cover the possible losses and therefore you won't expect any more provision. So the full exposure is not provisioned because you believe that whatever you're provisioned is sufficient already. Is that correct?

Speaker Change: That's correct, RJ. As you just mentioned, the maximum closure at the time was that two years.

Speaker Change: There were other funds in which we invested, and as I mentioned before, we expect that the major... With the knowledge we have today, we expect that the major impact should be what we provision.

Speaker Change: Okay and then just to clarify one more one more thing is this the kind of a so you felt the need to backstop your clients

who invested in this fund. Is that kind of a...

Speaker Change: you know, a typical practice, or is that because you felt like...

Speaker Change: that was the oversight on your part that perhaps this you know kind of dealt with this entity or you know if you just I guess what I'm trying to understand is if you're

Speaker Change: and another one gets in trouble, would you always do this or was it just a one-off? How should we think about this case?

Speaker Change: to bear the whole risk and take our clients out of the matter. It's not a useful practice whatsoever.

Speaker Change: Okay, so it's more of a one-off, right? Hopefully. That's correct. That's correct.

Okay, okay. Very clear. Thanks.

Speaker Change: Thank you, and as a reminder, if you'd like to ask a question, please press star then one. Our next question comes from Carlos Gomez at HSBC. Please go ahead.

Carlos Gomez: I would like to ask about expenses and in particular periodification of expenses, as you mentioned the fourth quarter tends to be higher.

Speaker Change: I look at, you know, some of the lines such as, you know, Professor Alfins and they really do jump a lot in the fourth quarter and I wonder if, you know, you are thinking of perhaps distributing the expenses differently over the year.

Speaker Change: so that we get a, you know, a more clearer picture of how they evolve. Second, in terms of also expenses, could you give us an idea about how much you think you might have to invest in Chile for the TEMPO operation in the coming years? Thank you.

Cesar Briceno, Gianfranco Casas, Milagros Cigeas, Alejandro Perez

Thank you.

And for the second one...

Speaker Change: We're going to keep spending the same amount of money for next year at King's Temple.

Speaker Change: the final license as a full bank depending last authorization is based on that TEMPO complies with all operational matters.

Speaker Change: and Connectivity Matters, which we expect to be complied by the last quarter of this year.

Speaker Change: Once you are fully operational and you have the full license, do you need to make an extra investment to make it a full-fledged bank to compete in the market?

Speaker Change: The answer is yes. Actually, it has two answers. I don't have the exact figures. One is that we will make another capital equity investment, this regulation, and then we need to, since

and Hazen Bridge.

Speaker Change: Regiment is going to need more funding from our side to ramp up operations.

Thank you.

Speaker Change: Sorry for not being specific enough. Maybe what is relevant is what I've answered before. Overall, we expect this year that the new ventures should generate, should be cash flow, slightly cash flow negative, almost cash flow neutral.

Thank you very much.

Thank you.

Speaker Change: Thank you. It appears there are no further questions at this time, so I will now turn the call back over to Mr. Gianfranco Ferrari, Chief Executive Officer, for closing remarks.

Speaker Change: Our success highlights our diversified portfolio, digital innovation, and strategic risk management.

Speaker Change: Building on this momentum, we will continue to benefit from Peru's recovery, which is fueling growth across our key business lines.

Speaker Change: These achievements highlight the effectiveness of our strategic initiatives in bolstering stability, improving efficiency, and reinforcing our competitive advantages.

Speaker Change: As a result, we are well positioned to navigate volatility and capitalize on opportunities to drive sustainable growth.

We reaffirm our sustainable ROE target of 18% by 2026.

Speaker Change: This expectation is supported by a resilient NIM and an increasing risk-adjusted NIM as we continue to shift our loan portfolio towards retail and accelerate digital transformation, targeting 10% of risk-adjusted revenues from new business models by 2026.

Speaker Change: This will also lead to an improvement in efficiency as our disruptive initiatives mature.

Speaker Change: Looking ahead, we remain focused on three strategic pillars, attracting and retaining top talent, accelerating digital transformation, and integrating sustainability into our core strategy.

Speaker Change: By advancing these priorities, we will sharpen our competitive edge and drive long-term value in an evolving global landscape.

Speaker Change: A robust risk management framework is also central to our study.

Speaker Change: Our 2025-2027 Risk Transformation Program will enhance capabilities across all subsidiaries through automation, advanced monitoring, and a structured implementation approach.

Speaker Change: Key initiatives include strengthening the risk function, scaling distinctive capabilities, and embedding a stronger risk culture.

Speaker Change: These efforts are expected to lead to higher growth of the lending portfolio while optimizing it.

improve risk-adjusted profitability, and expand financial access for underserved Peruvians.

Speaker Change: With a clear strategy, discipline, execution, and a commitment to innovation, we are confident in our ability to drive sustainable growth and create long-term value for all stakeholders.

Thank you all.

Speaker Change: and I'm going to be talking about the the the the the the the the the the the the the the

Speaker Change: Thank you ladies and gentlemen. This concludes today's presentation. You may now disconnect your lines and have a wonderful day.