Credicorp Ltd.

Good morning, everyone. I would like to welcome all of you to the Credit Corp Limited Third Quarter 2021 Conference Call. We now have all of our speakers in conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of today's presentation, we will open the floor for questions. If you would like to ask a question, please signal by pressing star, then 1 on your telephone keypad. If you have connected to the call using the HD web phone on your computer, please use the keypad on your computer screen. If you are using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. With us today is Mr. Walter Bailey, Chief Executive Officer, Mr. Gianfranco Ferrari, Deputy Chief Executive Officer, Mr. Alvaro Correa, Deputy Chief Executive Officer, Mr. Cesar Rios, Chief Financial Officer, Mr. Reynaldo Llosa, Chief Risk Officer, and Mrs. Milagros Cegueña, Investor Relations Officer. And now, it is my pleasure to turn the conference over to Credit Corp's Chairman of the Board, Mr. Luis Romero. You may begin.

Good morning, everybody, and welcome to our Credit Corp conference call. I hope you and your families are healthy and safe. Before Cesar begins the presentation on our results, I would like to share some opening remarks with you. I'm very pleased to join you today in a special period when our strong third quarter results reflect an inflation point in our businesses' recovery and in our digital as well as sustainability journeys. This coincides with a transition in our top management team, and this happens to be Waters and Alvaro's last conference call. I wanted to take this opportunity to express our deepest gratitude to both Walton and Alvaro for their invaluable contribution to Credico. They are genuine leaders who have inspired our teams, transformed our business, and driven our success. Alvaro has had an exceptional 24-year career within the group, including the last few years as deputy CEO overseeing insurance, pensions, investment banking, and wealth management. Over the last two years, he has played an invaluable role in driving and steering our process to integrate sustainability in our business strategy. Alvaro's technical chops, transparency, and humanity have been deeply valued over the years by investors and colleagues alike. Walter has had an extraordinary 28-year career at the group, including the last few years as CEO of Credit Corp, and prior to that, 10 years as the CEO of PCP. With strong vision and steady hand, Walter has led us as we embark on new journeys, including penetrating the microfinance business and even the fast markets, which now represent our main avenues for regional growth. Most importantly, Walter has been an inspirational yet approachable leader who has attracted and developed a talented and professional management team. Alongside these individuals, he has helped build a resilient organization over decades of both challenging and promising periods. It has been our privilege to have Walter at the helm of our group. We have planned and managed this transition process very carefully and are fully confident that Gianfranco has both the skills and experience to lead Trenico to new chores. He will build upon the foundations of the organization before us today, a leading and diversified financial services group with more than 40,000 employees and a solid presence in Peru, Colombia, Chile, Gianfranco knows our organization inside and out and has actively participated in the process to define credit card strategy. Over these 25 years with the group, he has successfully led a myriad of areas at BCP, including corporate banking, investment banking, BCP Bolivia, and retail banking. where he spearheaded the bank's digital transformation journey. Jan Frank is an inspirational leader who energizes and engages his management teams to set the bar higher. We are very pleased to have him as the next CEO of Credit Corp. Again, many thanks to both Walter and Alvaro. Now, I would like to give the floor to Cesar. and the management team who will conduct the conference call on the results for third quarter 21. Thank you. Go ahead, Cesar.

Thank you, Luis. Good morning and welcome to CREDIT CODE's conference call on our earnings results for the third quarter of 2021. I hope you and your families are healthy. Official data indicates that in August, economic activity grew 11.8% year-over-year and 1.6% compared to the figure reported in August 2019. Our estimates indicate that in the third quarter of 21, the economy expanded around 11.2%, topping the pandemic levels. It is worth noting that the construction sector grew 21% with regard to the third quarter of 2019. In addition to statistical rebounds, recovery in recent months has been boosted by a favorable external environment where copper prices stand at historically high levels and Peru's main trading partners are registering an acceleration in growth. Regarding the sanitary situation, mortality rates have fallen considerably after reaching a peak at the beginning of the second quarter. This improvement has been driven by not worthy advances in the vaccination program, as 81% of the adult population have received at least one dose. The government's goal is for all adults and children between 12 and 18 to be vaccinated by year-end. We expect the GDP to rebound around 12% in 2021, which is better than initially expected due to strong commodity prices and expansive monetary and fiscal policies. Next slide, please. President Castillo's recent cabinet reshuffle was perceived by economic agents as a signal of potential moderation. This move, coupled with the ratification of Julio Velarde as chair of the central bank, bolstered Peru's financial market and saw indicators improved. For example, The exchange rate has fallen from 4.13 to 4 soles per dollar. Additionally, the 10-year local currency government bonds yields dropped from a peak of 6.8% to 5.9% as November 3rd, while the level of non-resident holdings of soles denominated government debt recovered from a low 14%. for 44% in June to stand at 52% in October 2020. Net worth of national reserves hit $75.4 billion in October after expanding at $71.8 billion in June. It is worth mentioning that the central bank has raised its policy rate by 100 basis points since August to control inflationary pressures. This rate currently stands at 1.5%. On the political front, the new prime minister appeared before Congress to request a vote of confidence for her cabinet. Additionally, the executive branch presented a bill to Congress to request extraordinary powers to legislate on several relevant models. The main points of this proposal include increasing the personal income tax for individuals who earn more than $300,000 a year, extending the application of dividend taxes to domiciled legal entities, creating a new mining tax regime, imposing a sales tax on life insurance policies, enacting measures to adapt capital requirements in the financial system to Basel III standards, increasing the level of economic sanctions that the regulator can impose on financial institutions, and implementing initiatives to ensure a more active role for Banco de la Nación. We will continue to closely monitor political and regulatory events and the impact in our businesses. Next slide, please. Going on to credit cost performance, we continue to foster financial inclusion and business growth through digitalization. while we recover profitability across the board. In line with our ambition to create a more sustainable and inclusive economy in the last nine months, we have included 785,000 individuals in the financial system through YAPE in Iván González, our YAPE equivalent in Bolivia. Complementarily, Millions of individuals and micro-businesses have also benefited from our ABC financial education program at BCP and Pacific. We operate in under-penetrated markets and decide growth opportunities while accelerating our digital transformation. BCP is growing its client base mainly through digital clients which, as of September, accounts for 57% of individual clients. Lancome is already within the benefits of the implementation of this hybrid model in September, with 10% of loan operation worth its worth to our tournament channels. Regarding quarter over quarter results, Credit Corp's loan portfolio holds 2.4% in quarter head balances, boosted by local co-receipt evaluation. Excluding the exchange rate effect, the loan portfolio remained flat given that 1.7% uptick in the structural loss was offset by 8.6% drop in government program portfolio. Core income, which is composed of net interest income, fee income, and FH transactions grew 4.8% due to an uptick in the structural loss and higher interest rates. Additionally, The income was boosted by growth in transactional activity and in turbine transfers. Provision expenses dropped due to improvement in the payment behavior of clients at BCP and Milanko, which led the cost of risk and structural cost of risk to drop to record low levels of 25% and 0.54% with crisis. Insurers and the rightful results recovered After COVID-19, related claims in the life business registered a material reduction, which reflects the improvement in the sanitary situation. In the third quarter of this year, Credit Corp. registered $1,164 million in net inbox and an ROE of 18.57%. Yesterday, ROE stood at 13.46%, which is within our guidance. Finally, our balance sheet remains strong with ample liquidity and adequate capital pressures. Next slide, please. I will briefly describe the results of the lines of business level, but we provide further details in the section on consolidated performance. Universal banking is registering a strong rebound as BCP accelerates its transformation investments. In the third quarter of 2021, BCP contributed 1,058 million soles in earnings with a return on equity of 23.1%. DCP's ROE is quoted as exceptionally high due to the 69% water recorded contraction in provisional expenses, which reflected an improvement in payment behavior that was driven by a pattern that expected a kick in economic reactivation. water recorded, which was mainly driven by growth in structural loans and interest rates and by an increase in transactions, which was fueled by an increase in consumption in interbank and international transfers. BCPS Panalone registered a 14% year-over-year increase in expenses, which was primarily a tribute of over $19.19 and consulting expenses for digital transformation. ROE at BCP for the first nine months of 2021 stands at 19.7%, which reflects a strong rebound from the COVID-19 crisis. BCP standalone's core equity to one ratio remains within our internal limits and stood at 11.1% this quarter. BCP Bolivia's results show little variation in the growth, which reflects a lower risk appetite in an uncertain economic environment. Next slide, please. Macrofinance continues to recover as business activity pickups and implementation of the hybrid model begins to pay off. On Ivanko, the use of data analytics and alternative channels has begun to yield improvements in volatility and has allowed us to streamline loan underwriting for good quality borrowers. Structural disbursement has exceeded pre-pandemic level, things follows. Net interest income grew 7.5% water worth water boosted by a reversal of interest income provisions set aside previously for reprogrammed loans. The increase in net interest income was also attributable to an uptick in origination volumes. Loan provisions dropped slightly due to an improvement in client payment performance and new originations with lower risk profiles. Our hybrid model has helped us control operating expenses and improve origination volumes and in parallel with how to reduce branches and the sales force. In Ivanko, Colombia, results improve the cannot-peak in origination volumes. Microloans are gaining relevance and boosting yields, while the decrease in the level of provisions reflects an improvement in credit quality and risk models. The company is now focused on implementing Ivanko's Peru best practices as it improves the productivity of the self-sourced and developed digital capabilities. Next slide, please. Regarding the current business, Pacific Coast Earnings goes back this quarter and entered a positive range due to a decrease in claims in the life segment and growing premiums in the life and property and casualty businesses. In life, COVID-19 claims dropped 82% quarter reported after IDNR. results were released in a context of a significant drop in mortality. Life results were also boosted by growth in net premiums, which surpassed 300 levels. In product and facility, results were impacted by an increasing claim as COVID-related restrictions of movement and business activities were lifted. This effect was mitigated by an increase in net premiums. Results in our corporate health insurance segment also bounced back into a reduction in COVID-related medical claims. Conversely, medical services were impacted to a decrease in pandemic-related services. In the pension business, Prima Fee remained proficient despite an 18% reduction in under management in a context of pension fund releases. We are closely monitoring the regulatory risk in this business. Next slide, please. Regarding our investment banking and work management businesses, income dropped quarter over quarter, mainly by the capital market and asset management business due to lower trader volumes and asset under management outflows respectively. In this quarter over quarter analysis, assets under management grew 1.6% in local currency but registered a drop of 5.2% in U.S. dollars. Assets under management construction were driven by the asset management business where traditional funds experience outflows. Assets under management in the wealth management business remained relatively stable after Peruvian clients migrated assets to our offshore platforms, where we are growing the value proposition to cater our clients' changing needs. The income contribution of this business decreased 11.4%. This was nearly attributable to the capital markets business as income was affected by the results of proprietary portfolios in a context of rising interest rate and a decrease in transactional activity. To a lesser extent, the dropping income contribution was driven by the asset management business where assets under management contracted. Next slide, please. I will discuss credit course consolidated performance. The interest earning asset mix improved in a context marked by an increase in the structural loan share of total assets and a decrease in reactive loans balances. This was partially offset by a 12.2% worth over quarter contraction in the investment portfolio due to an expiration of certificates of deposit which were not renewed and increased the liquidity assets. A more long-driven portfolio coupled with an increasing market rate leads to rise in outward interest earnings. Quarterly quarter credit-cost loan growth grew 2.4% in ending balances at 4.8% in average daily balances fueled by an uptick in the exchange rate. If we control both the exchange rate effect and the government's program loans, the structural portfolio grew 1.0% in quarter-end balances and 5.1% in average pay-to-balances. On the liability side, a reduction in funding from government loans was offset by an active low-cost deposit, which resulted in a less expensive funding mix. Moreover, interest rate hikes have a limited impact on our funding costs, which is not very sensitive to interest rate movements, given that, Low-cost deposits account for approximately 58% of our funding, and most of our wholesale funding benefits from fixed interest rates are really laughing. Next slide, please. This quarter, both the structural portfolio and trading behavior continue to evolve favorably across all sectors. Consequently, both the structural yield ratio and the cost of risk ratio improves. The indulgence and pain in behavior registered improvements in retail banking and at the bank of this quarter. This positive evolution was attributable to an economic activation and upticking employment, growth in levels of personal liquidity via pension fund withdrawals, and increasing public investments. In this context, credit cards' structural NPL stood at 5.2%, which represented a quarter-over-quarter reduction of 40 basis points. The downward trend in the cost of risk is also not worth it as it represents record low levels. This improvement was seen across all our subsidiaries, driven by better payment behavior and partially offset by an increase in provisions related to an adjustment in write-off policies at MiBanco. In this scenario, Credit Corp's Structural Cost of Risk contracted 69 basis points falling from 1.23% to 0.54% in year-to-date figures. The cost of risk stood at 1.15%. The level of structural allowance of loan losses at quarter end was equivalent to 7.1% of Credit Corp's loan portfolio. It is important to note that the quality of the government program portfolio deteriorated this quarter due to grace period explorations. This deterioration may have impacted asset quality ratios for the total portfolio. Nevertheless, we are not highly concerned about this evolution because the loans in the current portfolio are safeguarded by unbridled state guarantees. Credit course structural yield increased 21 basis points quarter-over-quarter to stand at 4.53%. Recovery was attributable to an increasing yield and a more favorable asset mix driven by strong structural low-mobilization and a reduction in reactive allowance. Risk-adapted mean increased 57 basis points this quarter and reached This metric recorded faster time gain boosted by a significant decrease in provision levels. Core income increased 4.8% quarter over quarter, which was primarily driven by growth in net interest income. Income grew alongside an active in transactional activities in several channels and interbank and international transfers at PCP stand alone. This growth offset the impact of recent regulatory changes which placed fee restrictions for relevant sources of income beginning in the second quarter. This 15.3% year-over-year improvement in core income was primarily attributed to growth in interest income and secondary to an increase in fee income given that the fee restrictions that were in place last year due to the pandemic are no longer in effect. Next slide please. In the first nine months of the year, trade course efficiency ratio improved 120 basis points year-over-year. Improvements were driven mainly by the positive evolution of operating income in the banking businesses, insurance and pension line of business. This evolution offset higher expenses at DCPS and along for digital transformation. Pacifica's income registered growth this year after it won a larger tranche of the Cisco 5 tender for ASPU-related coverage. The premium rate for this tender was higher than offered by the Cisco 4, the previous biannual program. At Durango, operating income grew 19% year-to-date while operating expenses grew only 1%. Expenses remain under control despite a significant increase in units and transformation expenses to implement by hybrid business model. It is well-mentioned that approximately 38% of September loans operations, which represented 9% of total disbursements amounts, were processed through alternative channels. These alternative channels complemented our traditional venues by originating low-ticket cost-efficient loans that boost Medancos operating income. Next slide please. At BCP, we continue to work on key achieve our objective for customer experience and efficiency and ensure our competitiveness in the long term. Regarding technology, in the first nine months of 2021, our software releases increased 87% year-over-year. Our downtime in key channels was high and we made favor in managing the cyber risks. Our aim by year end is to fully comply with all the statements of The FSIPC, Cyber Security Assessment Tool, at the baseline, evolving an intermediate level and fulfilled 90% of all statements at the advanced level. Today, it has fulfilled 84% of these targets. The consumer assessment customer satisfaction has evolved favorably, driven by improvements in key customer governance for both digital and personal processes. Growth in digital clients. which represent the 57% of the total client base this quarter continues to climb. The use of data in real time has helped boost digital sales, which stood at 37% this quarter. PCP's firm progress with driving digital channels use facilitate a 9% reduction in branches over the last 12 months. Digital transactions continue to grow exponentially, and it is worth highlighting how JAPI's share of total transactions has shown up. This quarter, YAPI surpassed mobile banking in terms of monetary transaction level, while just two years ago, YAPI numbers were negligible. Next slide, please. YAPI was launched as a P2P application to allow PCP clients to make a small ticket transfer using the telephone number of QR code instead of using cash. YAPI has seen the world to offer new features and numerous partnerships. Over the last year, YAPI usage has grown exponentially and today boasts more than 7 million users. We expect to reach the 10 million user mark every next year. As the largest small ticket trading ecosystem in Peru, YAPI's vision is to become a super app, which is a third-party distribution channel for companies in Peru. The YAPI card is important there for growing financial inclusion and is used by 34% of YAPI employees who are able to open a digital wallet with a national identification number. No bank account is required. By channeling government social assistance payments to vulnerable families, the YAPI card captures new users, that have yet to be vandalized. YAPI will channel a new grant of government assistance payments to beneficiaries in the fourth quarter of this year. 49% of total users are active on a monthly basis. Of this universe, 61% are visited clients and 19% are SME clients, which have utilized their small ticket collection and transaction to YAPI. We continue to use YAPI have been the transactions of the month compared to September last year. Total transactions have reached 38 million for a volume of 2.4 billion dollars. The app's focus thus far has been on growing the user base and increasing frequency of use. Today, we are initiating the monetization phase before The end of this year, GAPE will launch microloans, mobile top apps, and dynamic UI cultural companies. We are also working on an interesting monetization pipeline, which we will launch down the road. Next slide. As part of our innovation efforts, we have developed several disruptive initiatives to pinpoint exponential growth opportunities with new sources of value. Initiatives have ambition objectives that force us to think out of the box, and success relies on impeccable execution. Some initiatives are closer to our core, and such are developed within specific product segments. Initiatives adjacent to our core, or those that are considered more transformational, are developed through innovation centers and companies, where task force work on product market feeds for interesting ideas. In the pending initiatives invested through CREALO, our firm for invention capital and company leaders at the record level are in the early stages of testing new business models based on a VC perspective. The scale initiatives such as YAPI, which was conceived in DCP's innovation sector, has leveraged DCP's customer base and commercial model to grow its user base quickly, along with its interaction and transactional level Initiatives such as which were developed independently to create a lot of native digital platforms. They have flexible architectures that can be easily adapted for UX, UI, and time-to-market purposes when developing new features. Having learned from different experience, we are now revisiting the strategy for our fintech ecosystem to review aspects relative to investment

Pardon me, ladies and gentlemen. We seem to be experiencing some technical difficulties, so please hold for a moment while we reconnect our speakers. Thank you. Thank you.

And I've reconnected our speaker line, so I'd like to turn it back to Cesar.

I'm sorry for this technical issue. Probably I am going to repeat the last phrase. Having learned from different experiences, we are now revisiting the strategy for our FinTech ecosystem to review aspects relative to investment vehicles, the governance model, and management initiatives. Our aim is to develop the best descriptive business models by leveraging our incumbents' market knowledge and customer relationships. The goal is to enhance decision-making at credit cards level, but at the same time, avoid conflict of interest within our incumbents. We expect to share our revisited digital strategy with the market in the first quarter of next year. Next slide, please. Regarding the sustainability fund, we have recently published an ALSG update and conversed with investors to comment on our recent milestones and upcoming initiatives. You can find this document in the presentation section of our website. We want to highlight some specific milestones from this update. First, this year we made a solid commitment to the environment by declaring our goal to achieve carbon neutrality in our direct operations by 2032. We have also made progress in other initiatives related to this commitment. On the social front, we successfully extended the benefits of our hybrid model for cost optimization and development to our smaller macrofinance projects and implemented other initiatives related to our tending equity program. Additionally, we continue to make progress in bolstering financial inclusion in education, banking more individual and SMEs, and also reaching a very large audience with innovative financial education initiatives. We have incorporated gender diversity guidelines in our process for the board in our corporate governance policy. Additionally, we are seeking to ensure that the board actively engage with investors and other relevant stakeholders. All these efforts are directed and supervised by our senior managers and sustainability sponsors. We have focused on providing leadership at the company with the knowledge to be effective role models for sustainability, which will ensure that the sustainability mindset is not communicated to and internalized by the entire organization. Next slide. We are confident that the outward trend in profitability weakness this quarter will continue in the short term. We expect the Julian GDP growth for 2021 to stand around 12% in a context marked by better than expected economic recovery at top pre-pandemic levels and record high prices for gold. Local portfolio growth measured in average daily balance is expected to be situated slightly above the guidance range, impacted by local currency devaluation. We expect NIN to situate in the mid-clutch of guidance, in line with a more profitable interest-earning asset mix and higher interest rates. Regarding cost of risk, we expect to close the year below current year-to-date levels. Regarding efficiency, the ratio is expected to situate at the upper end of the guidance range as higher expenses are recorded in the last quarter as we accelerate transformation initiatives. Finally, In a context of ongoing gains in profitability, overall ROE for 2021 is expected to situate in the upper end of the guidance. We will continue accelerating value creation by executing our digital strategy, which coupled with our sustainability efforts will ensure that we sustain long-term competitiveness. With these comments, I would like to start the Q&A session.

Thank you, sir. If you would like to ask a question, please signal by pressing star then 1 on your telephone keypad. If you have connected to the call using the HP 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. We will pause for just a moment to allow everyone the opportunity for questions. We also ask that you please only ask one question at a time. After each question has been addressed by our speakers, you will then be allowed to ask as many follow-ups as needed. But again, please only ask one question at a time. Thank you. Our first question today will come from Jason Mullen with Scotiabank.

Thank you very much. Hello, everyone. My question is this. After all this, it seems like really the economic reactivation has been moving ahead in full steam even faster than many expected. What happens next? How are you thinking about the economic outlook for next year, 2022, and what that means for the banking system? In that context... I guess if I were to calculate the depreciation of the Peruvian soul from probably the beginning of 2020, it would probably be close to 20% off the top of my head, from like 330 to 4 solace per dollar. You know, we've seen a big move there, and I guess it was the end of 2014 that we saw a push to de-dollarize the loan book. but if you can also, in that context of what you're looking for, talk about how the movements in the FX has impacted the economy and your business, and if you see that being an important factor going forward.

Thank you. Okay. Thank you, Jason. This is Walter. I will give you some of the things that come off the top of my head, and then I will pass it on to Cesar for maybe a little bit more detailed, but I'll try to give you the color. The way I think we're viewing it at this stage is that we will have an economic recovery, a growth next year that will be somewhere between maybe two and two and a half, around that number. It is difficult to estimate loan growth because we have had a distortion in the growth of the loan portfolios because of the injection of the money via the reactiva. So the long-term or medium-term measure of loan growth is one and a half times nominal GDP has been disrupted. That it is, you know, not easy to predict growth for next year. But I would say it will be kind of a low end of what we would expect. So with a two and a half, maybe two and a half percent GDP growth, we should be growing somewhere around six. And maybe it will be somewhere between, you know, five and seven, let's call it six, but with very big differences. Probably a lot more dynamics in the retail side and a lot less dynamic of growth on the wholesale side. But it's very unclear, as I mentioned, because this long-term trend has been disrupted by the incredible amount of injection of the reactiva program. Regarding the effects, we do expect a lot of stability going forward. It is very clear that the current level of foreign exchange is severely impacted by the political noise. And that the fundamentals do not, you know, if it were just for the fundamentals, probably the exchange rate would be lower. But we don't expect more political noise going forward, just to maintain the actual existing relatively high level of political noise, but with very strong, you know, positive factors in the global economy. Thus, we do not expect any significant deterioration in the foreign exchange rate. The devaluation that you mentioned has not had a severe impact on the economy. It has been, it has happened over a relatively medium, you know, not very short timeframe. The economic agents have adapted, and it hasn't created, I think, any long-term sustainable damage. It did create, of course, a level of inflation. but I don't think that this deterioration in the exchange rate has any long-lasting effects. It did have some effect in our common equity tier one at BCP because, of course, risk-weighted assets measured in local currency increased, but with the profitability that BCP is having, you know, that is not an issue at all. I think I will stop here and Maybe you can add some more of your opinions and color to this comment.

Thank you. Thank you, Walter. Probably only some additional opinions. As you mentioned, the devaluation has been significant this year, around 20%. At the top, it was around 25%. But you didn't say that The impact in inflation was moderated. The expectation is that it's going to be around 1%, and the central bank is active decisively to control that using a number of instruments, including direct sales in the market and derivatives. The direct sales have been probably around $10 billion, and the derivatives around $4 additional billion dollars. But due to the stability, the country has already suffered an outloss of funds. It's estimated that probably from the beginning of the election process to the close of October, something around $15 billion. But it's not worth it to say that the trend has decreased significantly and in the last month probably has been neutral. So probably the biggest part of the instability process has already passed on, has caused international reserves, has had some impact on the level of reserves of the central bank, but the central bank at the end has $75 billion of reserves now, and the exchange rate is trading in a narrow range at this point. So probably the most volatile part of the impact has already been absorbed by the economy. Thank you. Sorry.

Yeah, thank you, Cesar. I think we have covered Jason's concern.

Yeah, I was just going to, for sure, my only, I mean, one comment that, one number I was looking at was just the proportion of dollars as a percentage of total deposits and that has increased to about 51% from around 46% a year ago. Is that something that we should expect to reverse or is that here to stay?

I would expect that that is going to stay there for a little while and will only gradually start to decrease to where we were before. As people realize and understand that there is no concern or expectations of further devaluation of the currency. I didn't say that .

Thank you.

Thank you. Next question, please.

Our next question comes from Ernesto Gabilanzo with Bank of America.

Hi, good morning, . And good morning to all your team. And good luck, Walter and Alvaro. Congratulations on your results. My first question is on the political and economic landscape. We have seen the vote of confidence for the cabinet. We have seen a more moderate speech from Castillo's government. So we think all of these should be helping in the short term. However, I would like to know your thoughts about the medium-term outlook. I think the country needs to implement a tax reform, maybe some structural reforms to promote growth. But how do you see all these under a divided Congress? And also, I don't know if you have been hearing the noise of a potential impeachment of Castillo at some point. And also, in all these environments, as you pointed out in your initial remarks, there could be more competition from state and banks. So I would appreciate your thoughts on this.

Sure, Ernesto. Thank you very much for your question. I was going to actually address a lot of your comments in my closing remarks, but I will take the opportunity to mention them now and repeat them later on. I think we have to take the conversation and the conversation around credit court away from politics. I think what we have seen in the first 100 days of this government is probably going to be the norm, which is basically decent macroeconomic policies, a lot of political noise, continued political noise, and probably not a very strong execution capability to implement changes. So that is most likely, that is what we have seen the past 100 days, the first 100 days of the government, and I would expect that that will be the case the next couple of years. So I think it's time to take the conversation out of politics and focus on fundamentals of what is happening within the country in terms of economic development and of what's happening within Credit Corp. So basically, in summary, Ernesto, I don't expect anything very different from what we have seen in the past 100 days. Did I answer your question?

Yes, sir. Yes, very helpful. Thank you so much. You're welcome. And then I have a second question related to your name. We saw a deal with your expansion, also in Cesar's remarks, he was saying, that we should expect expansion in the next quarters in light of higher rates. But considering that the reactive loans were extended for the end of the year, what should be the impact of the reactive loans in your names in the next quarters?

Sure. I will let Cesar take a first crack at your question, and Gianfranco that is sitting here with me would like to add comments after Cesar's first response.

Cesar, go ahead. Yes. In general terms, we expect that NEAR is starting to expand, driven by a mix in the portfolio and the increase in the short-term and long-term interest rate that goes through the pricing process. So the general trends should be upwards. The impact of Reactiva was around 40 basis points in the NIM, but this impact is going to decrease gradually in the next quarters to be, I would say, measurable in one year and a half.

Yes, just a quick addition, a short addition. Exactly, even though we do not expect an important growth in terms of the size of the book, in terms of NIM, it should improve because of The reactiva loans get paid. We expect some substitution with higher margins.

Okay, perfect. Thank you very much, Cesar and Walter.

Our next question comes from Thiago Batista with UBS.

Yes. Hi, guys. Thanks for the opportunity. I just want to follow up on this last question about the margins. When I look for the margins of PEDCorp, now we're talking about 4.5% of mean. I'm looking to the structure mean. And pre-COVID, this used to be, let's say, 5.5. So, we are now more or less 100 bit below the pre-COVID level. Do you believe it's possible to see margins going back to the pre-COVID level or all the changes directly to Peru? the cap, et cetera. The cap, I know that there is no big impact for a good cause, but with all the changes in Peru, do you see, if possible, to return the pre-COVID level? And the second one, very fast here, sorry for the second question, is about ROE. What is the level of ROE that is possible for cut costs in coming years? So, we did this 14% or we can see, let's say, the high things. What level of ROE that is feasible in the current scenario for cut costs?

Okay. Thank you, Taro, for the question. The answer to the first question is yes. We think things will get back to where we were pre-COVID. And, you know, just off the top of my head, we'll probably be there sometime around last quarter next year. And second, regarding your return on equity, we are very confident that the sustainable return on equity for Credit Corp will be, you know, around the 70% level.

Thank you.

Next question, please.

Our next question comes from Tito Labarda with Goldman Sachs.

Hi, good morning, everyone. Thank you for the call. You know, first of all, best of luck to Walter and Alvaro. You guys both set a very high standard, so wish you guys the best. My question is on the cost of risk, you know, very good performance in the quarter, a little bit of deterioration in asset quality, looking at your coverage ratio, getting closer back to historical levels. So help us think about the cost of risk going forward from here. Do you automatically now go back to like that 1.82.3? Can you still keep the cost of risk low through year end and into next year? When do you expect that to normalize to more normal levels?

Okay. Thank you for your words, Tito. Cesar, could you tackle the question of Tito, please?

Yes, we expect that the costs of risk are going to remain below pre-crisis levels during this year and some part of next year due to a combination of a better quality origination and the maturity of loans, probably with better performance that was anticipated and booked in our books around 2020. And we are going to came back to more normal levels even the composition of the portfolio in 2023.

Thank you, Cesar. So in summary, Tito, I think that all throughout the next year, cost of risk will still be below pre-COVID levels, just to be very precise. Thank you.

Okay. Yeah, thanks a lot, Cesar. And maybe just one follow-up on... not necessarily politics, but as you mentioned on the GDP, given the political environment, you mentioned for next year two, two and a half. Is that what you think sort of the midterm growth outlook for Peru should be, right? I mean, I imagine getting back to historical levels will be tough, but is that sort of the sustainable growth level you think on this administration?

Unfortunately, yes, Peter. It is below the potential, but I don't see that the in the next two to three years at least, the investment from the private sector will be able to drive the economy to higher levels of GDP growth as we have the potential to do.

Okay. Thanks, Walter. Very clear. And again, best of luck to you and Walter, to you and Alvaro, and also to Gianfranco as he takes over. Thank you, Tito.

Our next question comes from Andre Soto with Santander.

Good morning to all. Thank you for the presentation. My first question is just a quick follow-up on the marketing outlook. I would like just to understand, in terms of the substitution process that we have seen for the reactive loans, how is this new origination? Are clients willing to take the interest rate that they used to pay in the past for those loans or there have been any type of consequence in terms of pricing given the low rates that they were getting before. Also on margins, if you can remind us your sensitivity to the policy, the sensitivity of your balance sheet to the policy rate.

Sure. The first part of the question will go to Gianfranco and the second part to Cesar. Go ahead, Gianfranco.

Hi, Andres. We haven't seen any resistance whatsoever among clients that are getting new loans under market conditions in order to replace the reactiva loans. Not only at BCP, but most importantly at Mibanco, where, as you know, the margins are raised much higher. So we don't foresee any issue regarding that substitution process. Cesar, go ahead with the second part, please.

Yes. Doing, I would say, a static flexibility analysis of 100 basis points of increase in rate along the cube would mean 200 million additional soles of margins on a consolidated basis.

Perfect. And what is the timeline, Cesar, for that? How long it takes for your asset to reprice?

The whole period is longer, but what I'm giving you is the one next year of the sensitivity. If you start talking now and you move 100 basis points, what is the 200 million is the result or the net result in our books.

Perfect. Thank you so much for that. And my second question is regarding digital transformation and the investment that you guys are planning, which is stepping up this quarter and probably next one. I would like to understand if this is something that will continue into 2022, and therefore we should expect efficiency to remain at the current level.

Thank you. Gianfranco, go ahead. Yes, the answer is yes. We will Definitely. I believe we had this conversation a few quarters ago. We will definitely keep investing and maybe speed up our investments in digital transformation as we achieve results. As you are all aware, these digital investments, especially on the new ventures, are not cash flow positive in the short run. And the best example is YAPE. As Cesar mentioned, we already have our 7 million clients, we do not expect that next year and maybe by the end of 2023 or 2024 still to be a cash flow positive. So the answer is yes, we will keep investing obviously in the ventures that are in our vision successful and key in order to stay not only competitive but also shape the new digital market in the markets where we operate.

Perfect. Thank you for your answers, and to Walter and Alvaro, thank you so much for all these years, and good luck in the .

Thank you.

Our next question comes from Yuri Fernandez with JP Morgan.

Hi, all, and congratulations on the results. I have a question regarding dividends. I guess your historical payout when we do the adjustment for the outstanding shares, in the past they used to be around 50% to 60%, right? And as you said, maybe low growth will not be there in 2022. I mean, it's going to be the 5% to 7% you just mentioned. And your ROEs, it's likely they will be in a more normalized level. So my question is, Do you plan to increase the payouts? Can you share some color on that or no? Maybe you say, Yuri, maybe we want to create more capital. So maybe 2023, we wanna grow more. So what is the view for capital allocation? Thank you.

Yeah, good question. Thank you, Yuri. The answer is increase dividend payouts. We do not need additional capital. We have the levels of capital that we think are the appropriate ones. And so... as we have more higher return on equity that exceeds obviously the growth in risk-weighted assets, we will be distributing more dividends.

Thank you.

You're welcome.

Our next question comes from Carlos Gomez Lopez with HSBC.

Thank you. And I would also like to say thank you and goodbye. to Alvaro and to Walter, in particular to Alvaro, because he had a very, very tough job in the insurance business, and I think he did very well over there. So from the point of view of the analysts and investors, thank you very much. And, Walter, I know you want to focus on the bank, but I have a policy question. We now have a new composition of the central bank board. You have mentioned in the past how this could be determinant as to the policies there, and obviously the interest rate caps are very important. for the banking sector now. Do you expect any movement here over the next couple of years, or do you think that we have seen what we are going to see in terms of caps?

Thank you. We should wait. Thank you, Carlos, for your comment and your question. We should expect to first see the complete board of governors of the central bank to get done. Only three members have changed, and there are three more that are coming from Congress. But even with that level of uncertainty, the answer is no, we do not expect any changes in the interest rate gaps for the next, you know, year or two or something like that.

Thank you so much. Just, Carlos, this is Gianfranco, just to compliment Walter's comment. It is clear that the rates in Peru are where they are because there's a lot of cost in order to assess risk because of the level of informality in the economy. I would say that the current authorities at both the central bank and the superintendency are very, very aware of the negative impact that gaps on rates have in order to get financial inclusion.

Sorry, if I can follow up, because, yes, I think the Congress is aware about the impact on financial inclusion. That would also extend to the discussion around the pension funds, and we have not heard much over the last few months, but obviously that's a debate I will come back. Are you as pessimistic as you were a few months ago regarding the future of the private pension system?

Okay, yeah, regarding the pension system, as you know, there will be – the government has called for a reform. That is, a commission has informed. They will study, review. There's been a lot of work that has been done. As I have mentioned in the past, from Credit Corp's perspective, it is more important that the country ends up with a pension system that works and is financially sustainable, fiscally sustainable over time. more than what happens with Prima as a very good contributor to profits of Credit Corp. I would expect that the industry is going to change completely. Our likely scenario is that, yes, we will have a smaller contribution from Prima to Credit Corp going forward. So our vision has not changed. Thank you. You're welcome, Carlos.

Again, if you have a question, please press star 1. Our next question comes from Jose Cuenca with Citigroup.

Hi, everyone. Thank you for taking my question. Just to follow up with regards to what segments you expect loan growth to be more dynamic during the next year or going forward, I think you mentioned credit card or retail. to be more dynamic, but I was wondering how does this or how do you reconcile this with the figures that we've been seeing lately, and that is somewhat weak growth from credit card, I mean, improving economic and overall COVID conditions. So how can we think about the retail going forward, looking at current figures? And what could this mean? Given that you're growing in a particular riskier segment, what could this mean for core and MPOs? Thank you.

Sure. I'll give you a first comment, and then, Gianfranco, maybe you can compliment. Actually, when I was thinking, when I mentioned retail, I was really thinking a lot about mortgages in my mind, and I should have been clearer on that. So I think that – but I think there is an appetite. I feel there is an appetite for low end of the consumer market. And that includes consumer loans, more than actual credit card portfolio. Our credit card portfolio, as you probably know, is more focused on the bit of the upper end of the consumers. But I think there continues to be a good dynamic on the low end of the consumer, probably installment loans, particularly as we utilize more data coming from all the new IAPE customers and our ability to distribute loans via digital channels that lowers the distribution costs and makes smaller loans more economically viable for us. So it's installment loans and mortgages where I see a nice demand going forward.

Gianfranco, maybe you can... Yeah, just specifically on great cards, if you see the overall market, the market, due to coverage, Frank, like, so the outstanding balances... shrunk like by 30 to 35%, mostly driven by big ticket items that obviously because of the situation, like, I don't know, travel, tourism, appliances, and so on. So even though the economic outlook is not positive, we do expect that somehow that demand will come back. So that's the main reason, on top of what Walter said, That's the main reason why we see opportunity for growth in that product specifically.

Thank you.

This concludes our question and answer session. I'd like to turn the conference back to Mr. Walter Bailey for closing remarks.

Thank you. Before we conclude this call, I would like to say a few words. As Lucho has generally mentioned, I will be retiring from Credit Corp by year end after almost 29 years of being part of this company. Thus, this will be the last quarterly conference call that I will be participating in. I joined BCP in 1993, before Credit Corp was actually formed, and was very much part of the team that worked on the exchange of shares of BCP, Atlantic Security, and Pacifico. By the way, that is the origin of the letters BAP. Thus, Credit Corp was created. Since then, I have been in several roles and positions, been part of Credit Corp senior management, and have participated actively in almost all major strategic decisions. With Credit Corp, I have gone through all the possible business and political cycles, and we have managed to steer the company to always emerge solid, healthy, profitable, and focus on delivering value to customers and society. Undoubtedly, along the way, I have made my share of mistakes and made decisions that proved to be the wrong ones. This, of course, is very much part of what being a manager is all about. As an advice and lesson to those taking the leadership, having the clarity, humility, and courage to recognize those mistakes is what allows us to grow as an organization and individuals. I would like to be very emphatic in thanking the members of Kelly Corp's team that have worked with me over the years. It is this wonderful and talented team that always brought the best in me. Their support has always been unconditional, even under the most difficult and strenuous situations. I know that some of you are listening today. Thank you again. You have made it all worthwhile. To the international investment community, thank you as well for your support, understanding and patience. I took the role of being the main spokesperson for Credit Corp approximately 15 years ago and have always enjoyed the dialogue and challenge by our investors and analysts. I am confident that Credit Corp is in a very solid position, having fully recovered its profitability after the very dramatic impact of COVID in our markets, particularly in Peru. Going forward, I believe the future of Credit Corp hinges on three very fundamental issues. One, the continuation and maintenance of prudent macroeconomic policies, both on the fiscal and monetary front in the countries in which we operate. In this regard, I believe it is time to shift the conversation around Credit Corp away from politics. Over the past couple of months, the market has been, rightly so, very concerned with the political scenario. What we have seen the last 100 days is probably a good indicator of the next couple of years, namely decent macroeconomic policies, continued political infighting and noise, limited capacity to execute government policies. Thus, I reiterate the recommendation given to us by one of our long-term institutional investors in that it is time to shift away from politics and focus on fundamentals. The other two key factors that I believe will determine Credit Corp's future depend on management, and they are the successful outcome of our multiple digital initiatives relative to the day-to-day interactions of our customers, as well as the escalation of the various disruptive initiatives. The combination of both sets of initiatives will ensure the continuation of our customer preference, as well as the cost reduction that will allow us to successfully compete with alternative business models. And last but not least, our wholehearted embrace of our very well articulated ESG initiatives. The talent and commitment of the team that is taking leadership gives me tremendous confidence on the continued success of Credit Corp. Thank you all very much. And with this, we conclude the call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.