Credicorp Ltd.

Good morning, everyone. I would like to welcome all of you to Credit Corp Limited Fourth Quarter 2021 Conference Call. We now have all 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 one on your telephone keypad. If you have connected to the call using the HD web phone on your computer, please use the keypad on your computer screen. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. With us today is Gianfranco Ferrari, Chief Executive Officer, Cesar Rios, Chief Financial Officer, Francesco Raffo, Chief Innovation Officer, Rinaldo Llosa, Chief Risk Officer, Diego Cavero, Head of Universal Banking, Cesar Rivera, Head of Insurance and Pensions, and Milagros Siguenas, Investor Relations Officer. And now, it is my pleasure to turn the conference over to Credit Corp's Chief Financial Officer, Mr. Cesar Rios. Mr. Rios, you may begin. Thank you very much.

Good morning and welcome to Credit Corp's conference call on our earnings result for the fourth quarter of 2021. I hope you and your family are healthy. The latest available official data show that economic activity grew 3.5% year-over-year in November and 1.3% compared to the figure reported in November 2019. Our estimates indicate that in the fourth quarter of 21, the economy expanded around 3.3% year-over-year and 1.8% in the benchmark comparison with 2019. Consequently, Peru's real GDP rebounded around 13% in 2021, which was better than initially expected in a context marked by record highs for corporate prices, expansive monetary policy and fiscal policies, and high liquidity, both internationally and locally. Regarding the sanitary situation, Omicron daily infections have increased rapidly and are currently at levels of four times higher than in the peak of the previous wave. Mortality rates, however, are significantly lower. In fact, daily deaths in Peru represent just two-tenths of those registered at the previous wave peak. This evolution reflects the progress of the Peru vaccination program, through which 84% of the population 12 and older has received at least two doses. If mortality rates stay low, the economic impact of new COVID-19 wave should be limited to an uptick in employee absenteeism and supply chain delays. More sweeping impacts such as lockdowns are not expected. Next slide, please. Inflation has reared its head across the globe. Driven by shortages of inputs, problems with supply chain, and increases in international prices for oil, metals and grain commodities. This inflationary environment puts pressure on central banks around the world. With regards to Peru, consumer inflation is expected to stand at 3% at the end of 2022 versus 6.4% at the end of 2021. In this context, Peru will capitalize on the designation of a team of highly regarded professionals as central bank governors. This new board, led by Julio Velarde, is expected to effectively steer the central bank's policies to control inflation. Accordingly, the central bank has raised its policy rate by 275 basis points if follows. This rate currently stands at 3% and we expect additional increases. Other measures adopted include increasing bank reserve requirements. Regarding the exchange rate, its recent decline was driven by reduced perception of political uncertainty and a record trade surplus. This decline will also have an impact in slowing down inflation in 2022. Moreover, net international reserves stand at $78 billion at the beginning of February, which is close to its record high. The aforementioned factors, coupled with a fast decline in the fiscal deficit, which went from representing 8.9% of GDP in 2020 to 2.6% in 2021, has eased concerns and reflected in less volatility of Peru's sovereign long-term bond rates. Finally, on the political side, President Castillo has yet to appoint a new cabinet as the last prime minister who signed after just four days in office. Political instability lingers in Peru, but our economic fundamentals remain strong. Next slide, please. In Credit Corp, we continue to foster financial inclusion and business growth while we consolidate our return to profitability. In 2021, we included over one million individuals in the financial systems of Peru, Colombia, and Bolivia. Furthermore, Over 5 million individuals and micro-businesses have benefited from ABC, our financial education program at BCP and Pacifico. In the fourth quarter of 2021, our multi-channel distribution model continued to evolve. By year-end, digital transactions at BCP accounted for 51% of total transactions and 44% of disbursements at Nibanco were executed through alternative channels. Our anticipation of client needs and fast tracking of investments on the digital front have allowed us to enhance user experience in a context of heightened demand for digital transactions and services. Our quarter-over-quarter results show loan growth measured in quarter-end balances remain flat. If we isolate the negative exchange rate effect, a 4.2% uptick in structural loans were offset by an 11.2% drop in government programs portfolio. Core income, which is composed of net interest income, fee income, and FX transactions, expanded 2.9% due to growth in structural loans and a lower cost deposit mix due to seasonal transactional activity and higher FX volatility, respectively. Provision expenses dropped to an exceptionally low level this quarter, driven by improvements in payment behavior higher recoveries of written off loans, lower risk origination volumes, and improved GDP levels that are captured in expected loss models. This led the cost of risk to drop 2.34%. Insurance underwriting results returned to pre-pandemic levels this quarter, driven mainly by an increase in net earning premiums in both life and property and casualty businesses, and a decrease in property and casualty claims. expenses were higher this quarter, driven by an uptick in transformation expenses, variable compensation, and due to the usual four-quarter expense increase seasonality. In this context, Credit Corp's net income was $1,061 million, which represents an ROE of 16.4% at quarter end. In full-year terms, Core income expanded 13.8%, driven by higher net interest income, in line with an uptick in the structural portfolio, rising rates, and lower cost funding structure. Key income gains, which were triggered by higher volumes of transactional activity, but negatively impacted by regulatory restrictions for fees. And an increase in net gains on FH transactions due to better pricing capabilities and more volatility. The cost of risk dropped 8.82% in an environment characterized by higher than expected growth in economic activity, positive payment behavior, and a reduction in the volumes of riskier portfolios. The aforementioned factors were partially offset by the negative insurance underwriting results due to higher COVID-related gains and an increase in transformation expenses. As a result, Credit Corp's net income was 3,585 million solids in 2021, which reflects an ROE of 13.9%. Finally, our balance sheet remains strong with ample liquidity and adequate capital ratios. Next slide, please. We continue to advance in our sustainability journey. This quarter, MSCI informed us that our ESG rating has been elevated to the leader's category with a score of AA. This new score recognizes credit card leadership in managing the most significant ESG risks and opportunities in the industry. Additionally, credit card was selected to form part of the S&P BBL through General ESG Index, a representative ESG benchmark of the Peruvian equity market. In the environmental front, we developed a sustainability financial framework that is aligned with international standards and became the first Latin bank to obtain a strong S&P rating for this kind of framework. Additionally, our subsidiaries continue to adhere to commitments to combat climate change. In this regard, it is worth noting that Credit Corp Capital Asset Management became a TCFD supporter. In the social front, we have been recognized by prestigious institutions for our efforts on the financial inclusion, education, and gender equity fronts. Regarding governance, we continue to develop policies, codes, and structures that are aligned with international best practices. In the past few years, we have focused on improving our ESG disclosure. We are pleased to report that we will be publishing our 2021 Annual and Sustainability Report, which is aligned with international sustainability reporting standards, such as SA, SB, and GRI. Next slide, please. Regarding universal banking, in the fourth quarter of 21, BCP consolidated its return to profitability. Quarter-over-quarter results were driven by an increase of 4.5% in core income. This was attributable to an uptick in structural loans, mainly through retail banking, and 7.5% growth in fee income, which was fueled by an increase in transaction volumes to new services and digital channels. This quarter, gains in FX transactions were unusually high, which reflects our ability to leverage intelligence capability in a volatile FX market. The aforementioned was offset by higher provisions, which are still at very low levels. Additionally, operating expenses increased due to seasonality. In this context, return on average equity stood at 20.7% this quarter. On a full year basis, a 9.9% growth in core income was fueled by growth in net interest income, which was driven by by a 16.1% uptick in structural loans measured in quarter-end balances. Our results improved by leveraging data analytics and fine-tuned risk models to help us penetrate new SMEs, subsegments, and drive sales to digital channels. In fact, by year-end, digital sales represented 34% of total sales, while 71% of unsecured consumer loans were disposed to digital channels. In addition, our efforts over the last few years to optimize our balance sheets have led to a reduction in our funding costs. Another aspect that drove two-year growth in core income was the 20% increase in free income, which occurred despite the challenging regulatory environment and was driven by expansion in transaction volumes. Finally, in a context marked by an exceptionally low cost of risk, BCPs registered an improved in profitability despite higher personal expenses that reflect the normalization of variable compensation reduced in 2020. Also, these better results were able to offset the higher investment in digital transformation. As a result, BCP registered a return of average equity of 19.7% in 2021. By year end, BCP's core equity tier one ratio stood at 11.8%, which is within internal limits. At BCP Bolivia, our risk appetite remains low in an uncertain macroeconomic environment. In this context, our delinquency rate was below 1%, one of the lowest in the market. Next slide, please. Over the last year, YAPI usage has grown exponentially. At the end of 2021, Total 8 million users, 54 of whom are active users that make at least one transaction per month. The YAPI card is an important lever for growth in financial inclusion and is used by 38% of YAPI affiliates. You can open a mobile wallet with a national identification number. Of total YAPI users, 19% are SME clients. Our focus moving forward will be in capturing new users in this segment where 90% of transactions are still made in cash. YAPI is a natural conduit for financial inclusion and also brings new clients into the DCP fold. YAPI's indicators for frequency of use and number of transactions continue to rise. Today, after users executed an average of 12.7 transactions a month compared to 8.2 in December last year, total monthly transactions reached 58 million with a transacted volume of 3.7 billion soles. Next slide, please. 2021 has been a year of recovery and growth for both Nibanco Peru and Colombia, and this trend accelerated in the last quarter. Regarding Nibanco Peru, the hybrid model showed signs of consolidation and it boosted commercial productivity and efficiencies. This model gave us a platform to further centralize assessment capabilities in 2021. Now we can efficiently process information on potential loan recipients from multiple sources and consequently improve the risk profile for the structural portfolio. In addition, Nivanco embraced digital channels as a conduit for cost-effective loan growth. This capability is coupled with economic recovery and year An end-of-year seasonality propelled structural disbursement levels to record highs last quarter. In this context, this quarter, Nibanco consolidated this recovery. The quarter-over-quarter analysis shows structural origination reached a record high and grew 5.0% in average daily balances, alongside yields on loans rose triggered by enhanced pricing capabilities. positive dynamics were partially offset by an increase in cost of funds in the context of recent interest rate hikes. As a result, our net interest income grew by 2.5%. Despite mandatory fee restrictions, other income also improved in line with an uptick in bank assurance commissions, which was driven by growth in origination levels and a decrease in commissions paid to commercial firms. In this context, core income grew 4.4% quarter over quarter. Lastly, Nibanco's loan provision significantly dropped this quarter due to model adjustments, lower risk of alienation, and improvements in collections, which reflect the more favorable economic environment after COVID-19 restrictions ceased. At Nibanco Colombia, results were driven by higher alienation volumes and lower provisions. In 2021, we increased our commercial muscle and maintained productivity, thus boosting our presence in the Colombian microfinance market. Next slide, please. The insurance business has consolidated its recovery from quarter-over-quarter perspective. Grupo Pacifico's insurance and the writing results returned to pre-pandemic levels this quarter, These results were driven by solid growth in net earning premiums in both life and property and casualty businesses and by a decrease in property and casualty claims. The aforementioned dynamics were partially offset by an increase in the net claims in the life business driven by an increase in ID&R reserves. Our corporate health insurance and medical service businesses registered lower earnings attributable to growth in ID&R claims in corporate health insurance. This factor was partially offset by solid results in medical services, in line with increased revenues from outpatient services. All in all, Grupo Pacifico's return on equity stood at 11.8%. Finally, Prima posted a 12% net income growth quarter-over-quarter, driven by a recovery in the investment performance of its reserve fund. On a full year basis, Grupo Pacifico's insurance and their writing results ended up in negative territory after light claims rose considerably during the second wave of COVID-19. This impact was partially offset by solid earning premium growth in both life and property and casual businesses associated mostly with increasing premium levels from disability and survivorship insurance and the positive evolution of our digital channel. The strong performance of medical services also helped boost the consolidated results. Finally, Prima's 2021 earnings fell 1.4%, which was spewed by higher expenses to strengthen the company IT infrastructure. This investment positioned the company to handle an unprecedented level of service requests to alternative channels. Next slide, please. In 2021, Regional consolidation of our investment banking and wealth management business continued to gain traction. On a quarterly basis, results were driven by 0.5% growth in assets under management measured in U.S. dollars. This evolution was triggered by 2.6% growth in wealth management, which was fueled by an active brokerage fund volumes. Regarding income contribution, positive results in assets and wealth management business were offset by a contraction in capital markets. after negative results were reported for a fixed income proprietary portfolio due to lower gains from market operation. This led to contribution of investment banking and wealth management line of business to fall, minus 5.6% quarter over quarter. In full year figures, assets under management registered at minus 7.2% construction, mainly due to significant Peruvian mutual funds outflows, which were partially affected redirected to our offshore platform at lower fees, affecting long-term income generation. The expansion in income, mainly driven by asset management and wealth management, was partially attenuated by a contraction in capital markets, which led to investment banking and wealth management line of business to reduce their growth of 8.4%. Regarding our transformation process, in 2021, we achieved significant milestones that will allow us to optimize operating processes and lay the foundation for scalability. Among these, ASB Bank core absorbed ASB, changing its domicile from Panama and degrading its core banking systems to the cloud. Finally, we implemented a shared service center in Colombia where we have successfully degraded over 70% of our target processes in one year. Next slide, please. Now, I will discuss credit core consolidated performance. From the asset side, from a quarter-over-quarter perspective, the asset mix became more profitable in line with a 2.7% expansion in structural loans, which was driven by retail banking and the bank. Year-over-year, the structural loans grew 14.1%. This result was fueled mainly by wholesale banking, which registered growth, economic reactivation, and strong campaigns in the agricultural and fishing sectors. On the liability side, from a quarter-over-quarter perspective, growth in low-cost deposits remained flat, while all other funding sources fell by 4.9%. This allowed us to maintain a low funding cost. Year-over-year, it is important to highlight the low-cost deposit grew by 10.5%, while severance in daily deposits dropped 48.1% in line with an economic relief policy that freed up this fund for withdrawal. All this led to a decrease in our funding costs, which stood at 1.24% this quarter. On a full-year basis, the funding costs decreased by 49 basis points to stand at 1.29%. This was driven by the aforementioned growth in low-cost deposits and by the optimization of the wholesale funding costs at BCP in a context of low interest rates. Next slide, please. This quarter, both the structural loan portfolio and payment behavior continued to evolve favorably at the credit card level. Consequently, both the structural NPL ratio and the structural cost of risk improved. Loan volumes and on-time payments remain strong in our banking businesses. This positive evolution was attributable to economic reactivation, growth in individual liquidity due to government release, and an increased transactional activity. Additionally, MPLs balance were favored by higher write-offs, mainly from the bank. The aforementioned was partially offset by higher delinquencies in SME team segment, which was attributable to clients who also hold government programs loans. In this context, credit cards' structural NPL stood at 4.9%, which represented a quarter-over-quarter reduction of 30 basis points. Provisions continue to follow a downward trend across our banking businesses, reaching record lows each quarter. This improvement was driven by positive payment behaviors, lower risk levels, and higher write-offs, mainly in the S&P segment and above. The aforementioned was partially offset by an increase in provisions of wholesale banking after a limited number of corporate clients advanced to higher space of the linkbox. In this scenario, Credit Corp. structured a cost of rates constructed for 0.54% to 0.22% quarter over quarter. On a full year basis, we have registered significant lower provision expenses in a context of better than expected economic activity, deposit payment behaviors, which reflect an uptick in clients' liquidity, a decrease in risk and the loan obligation level, as loan expanded mainly to lower-risk retail products. In this context, structural cost of risk dropped from 5.12% to 0.89%. The level of structural allowances for loan losses at year-end was equivalent to 6.4% of Credit Corp's loan portfolio. In our government program portfolio, grace periods expire and reprogramming facilities conclude. We have a healthy client base and delinquency is concentrated in early stages. Nevertheless, overdue loans in later stages of arrears are being recovered through state warranties. Next slide, please. Credit cards mean continue an upward trend to stand at 4.25% this quarter, in line with a more profitable asset mix. Risk-adjusted mean increase 9 basis points quarter-over-quarter to stand at 4.04%. On a full-year term, net interest income expanded 9.2% fuel by the structural loan growth, an uptick in low-cost deposits, and an optimization of wholesale funding. Core income increased 2.9% quarter over quarter, which was primarily driven by 8.1% growth in free income. Free income was bolstered by an uptick in consumption through POS transactions with debit cards at the establishment. It is known that growth in consumption was driven by the small establishment, which generates higher fees. Finally, net gains in FX transactions increased significantly. 12.8% quarter over quarter in a context of high FX volatility, improved pricing and distribution capabilities. On a full year basis, core income expanded 13.8%, which was primarily attributable to growth in net interest income and secondarily to an increasing think on due to higher transactional activity. Think on close the year above the pandemic level despite recent regulatory restrictions. Next slide, please. On a full-year basis, credit cards efficiency rates improved fully basis point year-over-year. Improvements were mainly driven by the positive evolution of operating income in the microfinance and insurance pension line of businesses. This evolution offset higher expenses at BCP stand-alone related to digital transformation. At the bank, operating income grew 19% in 2021, while operating expenses grew 5%. Expenses remain under control, which reflects, in large part, the inroads that Nibanco has made in consolidating hybrid business model. Pacificos income registered growth this year after it won two additional tranches of the Cisco 5 tender for AFP-related corridors. The premium rate for this tender was higher than the rate under Cisco 4, the previous January program. If we exclude our investments in disruptive initiatives, such as YAPE and the portfolio of CREADO, from the calculation base, the efficiency ratio stands at 44.3%, which is 160 basis points below the reported ratio. Next slide, please. Our ROE stood at pre-pandemic levels at semester end. We are at the tough end of a challenging two-year period, which was marked by a sanitary crisis and episodes of potential instability. We managed the risk and arose by leveraging our strong balance sheet and took advantage of opportunities to emerge to strengthen competitive position. First, we decided to accelerate digital investments through the crisis and have leverage capabilities to penetrate new segments as we consolidate our market leadership. Over the past two years, our structured loan portfolio grew 11.5%. During the same period, we reported northward expansion of 66.6% in our low-cost deposit base. This, coupled with adequate management of wholesale funding in a context of favorable interest rate, will provide a funding cost advantage as we move into a cycle of interest rate hikes. Secondly, We steer our loan portfolio towards a better risk profile by enhancing our underwriting models and shifting some products from revolving to non-revolving facilities in both the SME and consumer segments. Third, we optimize fee income by leveraging price intelligence and focusing in building transaction capabilities. Through YAPI alone, the number of months transactions rose by 24 in the last two years. Although our insurance business was severely hit, we laid the foundations to increase profitability by strengthening our digital and bank assurance channel, developing business at the base of the pyramid, and refining our pricing and risk models. Finally, we accelerated investment and revisited our operating models to improve efficiency. Nivanco's consolidation of its hybrid model is already showing tangible results in this front. We will capitalize on our 45 competitive positions to 2022 and beyond. Next slide, please. Against this backdrop, we share the following expectation for 2022. Assuming that the current COVID-19 wave will have a limited and transitory impact on economic activity, we expect the GDP to grow around 2.5%. In terms of our loan portfolio, we expect lending activity to follow dynamics similar to those in currency. In this context, we expect our structured loan portfolio, which excludes reactiva loans, to grow between 8% and 10% in average daily balances. The evolution in total loans will depend on the pace at which reactiva balances are amortized. Regarding NIN, we expect interest rates to continue their upward trajectory as our loan books shift more towards retail. Accordingly, we expect NIM to situate between 4.3 and 4.6%. We anticipate that the cost of risk will fluctuate between 0.8% and 1.1% as positive payment trends continue and we leverage our enhanced intelligence capabilities. In 2022, we will continue to invest heavily in our disruptive ecosystem. As such, we expect our efficiency ratio to stand between 45 and 48%. It is important to note that we estimate that disruptive expenses will impact the efficiency ratio by around 300 basis points. We expect our insurance underwriting results to end the year slightly above pre-pandemic levels, provided that no additional material impacts from the sanitary situation arise. As a result, we expect our ROE to be situated between 15.5 and 17.5%. This improved prospects for profitability will allow us to continue to double down on transformational investments and increase dividend payouts. With this comment, I would like to start the Q&A session.

Thank you very much. We will now begin the question and answer session. 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're using a speakerphone, 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. And the first question today will come from Ernesto Gabalondo with Bank of America. Please go ahead.

Hi, good morning, Gianfranco and Cesar. Good morning to all your team and good morning, everyone. Thanks for the opportunity to take questions. My first question is on your net interest margin. I'd like to understand the potential drivers behind the NIM expansion for this year. like higher rates or how much additional hikes are you expecting, I don't know, an increased exposure from retail loans and Mibanco, and maybe some amortizations in the reactiva loans. So anything that you can give us on NIMA expectations I think will be helpful.

Sorry, I guess I wasn't near you, Gianfranco. Good morning. Maybe you can take this one, but yeah, go ahead, Gianfranco, and I'll make some closing remarks again.

Thank you, Gianfranco. I think, as I mentioned previously, I think we are going to have several forces at the same time. We are going to have a backdrop of increased interest rate. We have had a significant increase during 2021, 275 basis points, and we expect that this trend to continue probably with additional 100, 100 additional basis points through the year. This is going to be translated gradually to a higher nominal interest rates in our portfolio, coupled with with an increase in cost of funds, particularly in Nibanco. As a result, we expect an increase in net margins driven by this underlying trend and a gradual transition to more retail portfolio. We need to consider, although, that during 2020 and 2021, we have been originated lower risk, lower yield loans. So we need to gradually increase the rates reflecting a more normal portfolio to the 2022.

Thank you very much, Cesar. And just my second question is on operating expenses. As you mentioned in your remarks, you're expecting to do digital investments this year. So how should we think about the OPEX growth? I think last year was around 16%. Should we expect a similar growth this year? And considering next year's, when do you expect this OPEX world to normalize? I don't know if it would be reasonable to expect the OPEX world more in line inflation in the next years.

Thank you. I think first it's important to understand the dynamics of the 2022. I would like to emphasize that in 2022, we have the impact of significant higher operating volumes that carries additional costs. We expect this trend to continue. In 2022, we also normalized the variable compensation that was severely delayed during 2020. And this trend is going to continue based on top line and bottom line results in our main businesses. And the other factor that I think is going to make that our expenses are going to grow certainly more than inflation is that we are accompanying the increasing volumes in different channels with a significant additional expenses in transformational investments. As I mentioned previously, the impact in cost-to-income is going to almost double considering the marginal investment that we expect in transformation initiatives. So we are going to maintain a good control of the cost-to-income ratio, but we are going to experience still a growth in expenses above inflation.

And this, I understand perfectly this year, but thinking more about the medium term, like for the next year, should we continue to have this same pace of growth, or next year should be, again, going back to growth in line with inflation?

First, I think our expenses shouldn't grow in line with expansion, but in line with growth. the volume of business, and operational efficiencies. We expect to have a significant additional investment in transformation initiatives for at least two, three years. And after that, we are going to see less impact of these additional expenses and more clearly the positive impact of the income that these investments bring to the book.

Okay, perfect. Thank you very much. Yes. Ernesto, maybe just to add on what Cesar mentioned, I would say that we have to separate into the expenses account. One is the one that is related to growth. And as Cesar mentioned before, the number of transactions and activity that we have seen through 2021, I would say that it's going to keep up. This is part of the strategy we started I don't know, five, seven years ago, the war on cash strategy that has grown a lot because of obvious reasons, which is the pandemic. That trend should continue. But obviously, that growth in expenses is highly correlated to growth in income and income, basically. The other part is the investments we're doing on the digital transformation and on new ventures. And even though I believe we have an aggressive plan there, which we will share with you in March, obviously that's a stage-gated kind of investment. As far as the investments go well, we will keep investing. Obviously, they don't perform the way we expect them to. for them to perform, we won't reduce investment or even shut down those ventures.

Thank you, Gianfranco.

Thank you. And the next question will come from Jason Mullen with Scotiabank. Please go ahead.

Hello. My question really is a follow-up on part of the first questions. which is on expenses and efficiency, and in particular, the digital transformation and the hybrid model. I mean, how are you viewing the ability of the bank and the group to really bring, let's call it the non-physical transformation network expenses, how to incorporate those even more, and how we should see, like, is that really going to be still negatively impacting for multi-years, this investment in digital transformation? And if you can repeat the medium and long-term efficiency ratio targets.

Thank you. Francesco, could you answer the part on the digital investments?

Yeah, I mean, maybe you could give a sense of, like, in 2022 and 2023, are we going to see similar levels that we saw in 2021 and 20? Should they be trending down? How should we think about those and how they, you mentioned the growth portion of expenses increasing and the digital transformation. Maybe you can give us a sense of what corresponds to each portion.

I'll share the view in terms of our strategic intent, and then Cesar will probably compliment me in terms of the cost. The way we are viewing our transformation towards a non-physical channel is by expanding our customer base in the retail and in the SME business. And we are approaching this on a customer journey type of view, which is first acquire the customer and then continue with their transaction, the daily transaction, and then their next product sale related to cross-selling and a good solid relationship. Therefore, this is a multi-year journey. and we are beginning to analyze and to control the multi-channel kind of view. So we start directing customers towards only non-physical channels and to have a better service level around that.

Maybe just to complement that, because it goes into the details, Jason, A complete example of what can be achieved is what was going on in Nibanco. In Nibanco, we are in the process of deploying the hybrid model. In the last quarter, we got record level in terms of sales month by month with roughly 15% of less sales force. And that's because we are leveraging on the digital investments we've done in the past at Nibanco. So that's a kind of example of what we're trying to achieve. Obviously, some investments are that more clear in terms of the results, the short-term results, whereas there are others that are being done with a longer-term view.

Maybe I can compliment you on Franco. This is Diego Cabrero. We have been very successful in Banco de Credito in migrating, actually helped by the COVID-19 reality, in migrating transactions from the physical to the digital networks. So transactions in the branches, They used to be 7% of the total transactions of BCP, the monetary transactions. As of today, they are only 2%. And the number has reduced from 7 million or something to 4 point something million of transactions, monetary transactions. While at the same time, the digital channels have grown more than two times. So now we have to work actually in continuing this migration not only in transaction but also in sales and services and that will that will be much more efficient in the future thank you very much okay thank you and the next question will be from tito labarda with goldman sachs please go ahead

Hi, good morning. Thank you for taking my question. My first question is on your cost of risk. You showed guidance between 0.8 to 1.1, increasing a bit from 2021, but well below historical levels. If you can give a little bit more color on that in terms of your expectations for asset quality, does this imply your coverage will come down at all? And beyond 2022, Do you expect this to normalize back closer to the historical levels, closer to 1.8% to 2%? So if you can give some more call on that.

Thank you.

Yes. Regarding these years' expectations, I would say it's a mix of the high level of provisions we made in 2020 and also the good performance in all portfolios in every market, we've been watching in 2021. So I would say this year we will continue seeing good results based on those two factors. Regarding the future, probably these numbers will start rising a little bit starting in 2023, getting close to pre-COVID levels. That's our expectations as of today.

Okay, thank you for that. Just one follow-up there on the coverage ratio. Do you see that it's around 115%? Do you think that would come down a bit this year or kind of keep it around those levels?

Well, we, as in all metrics, we have a different approach in terms of the structural numbers and the total numbers. This 2015 includes the government loans, and those numbers are probably going to be impacted. But there we have, as you know, a big coverage of state guarantees. So we don't look at that number very closely. And the number we have in terms of coverage as of December 2021 of 132%, it is still above what we had in 2019. And I think we will look comfortable with that number. It might go down a little bit in 2022, but it's still at pretty good and sound levels.

Okay, that's very helpful. Thank you for that. And then my second question is on your digital list. It is particularly YAPE. You show over 8 million clients, a little bit more than half are active. Can you provide maybe some more color on your expectations for how does that client base grow from here to what percentage of those clients are BCP clients versus non-BCP clients, and if you have any other metrics that you can give, like what's the average revenue per client, any loans from YAPE deposits, any unit economics or numbers that you can help us quantify how YAPE should grow.

Francesco, can you get that one?

I'll take it. Yes, I'll take that question. About a third of the customers for IAPE are non-BGP customers and what we are continually doing is finding new ways to monetize them more than just transaction in terms of the P2P or the P2M model. We are beginning to see a very high transaction rate in terms of pop-ups, which is pop-ups for cell phones. And we are going to begin distributing for the lower end of the segment that is highly transactional. We're also... moving towards a more of a super app type of view where we think we can deliver high-value products on the lower end of the scale for retail in terms of access to good quality products for a lower-end segment of the retail market.

Thanks for that. And anything that you can give on, like, you know, revenues per client or loans per client or deposits and how you think that would evolve?

Not at the current time because this is something that we are beginning to view in terms of monetization per customer. Today we've been focused on growth and growing the customer base and having a lot of transactions, having active customers. So during 2022, we will be seeing those metrics.

Okay, thank you very much.

Tito, this is Gianfranco. Actually, we are organizing a city digital day. I believe it's March 15th in New York, so all of you are more than invited to attend, and we will be much more specific on other issues also, but obviously on Japanese.

Great. Thanks, Gianfranco. I hope to be there. See you there.

Thank you. And the next question will be from Olavo Artuso with UBS. Please go ahead.

Okay. Good morning, everybody. Thank you for taking my question. Actually, I wanted to hear from you about the strategy with the city of the group. I mean, After 2020, the RE of BCP standalone basically returned to the 20s pre-issue, while some operations like BCP Bolivia, Francisco, Credit Core Capital are still lagging behind with applicability well below the cost of capital of these operations. So I basically wanted to understand what is the bank's strategy for these subsidiaries I mean, what is the plan to foster these operations for the next few years? Or is it the case of an M&A? I don't know if this is the case, but is it the bank's pipeline of potential investment? Thank you very much.

Sorry, this is Gianfranco. We didn't get the first part of your statement slash question. Could you repeat that one? At least I didn't get it.

Yes, no problem. I just wanted to know, to have some more color about the expectations of yours. for the next two years about the subsidiary of the group, like BCP Bolivia, Pacifico, because they are delivering a profitability well below the cost of capital of these operations. So I wanted to hear from you what is basically at your plans for the next few years to show potential rebound on these operations, or I don't know if this is the case, but if it is in the bank's pipeline, a potential divestment from these operations. I don't know if you understood me clear. I can repeat that.

Yes, thank you. That was clear. I'll take that one. Actually, what we foresee is that all of our subsidiaries will be above cost of capital by year end this year, with the exception of obviously the digital ventures, and Bolivia. Bolivia, I don't know how much aware you are about Bolivia, but Bolivia, the business environment is quite complicated, and the banking environment specifically is quite complicated. I would say much more complicated than the business environment in general. So having said that, we've been in Bolivia over the last 25 years. We do believe that we have a strong franchise there. What we're doing is trying to become much more efficient and hoping to have better friends who are coming to Bolivia. And obviously, in that sense, unfriendly environment is quite complicated to do a transaction, a merger, an acquisition, or sell the subsidiary because of environment. So that's where we stand today.

Okay, very, very clear. And now if I may pose myself a question. It's very quick. It's about the pay ratio for this year. So given the profitability rebound shown in the last year and expectations implied in the guidance for this year, what could we expect about the distribution for this year?

Are you talking about dividend? Sorry, but the connection is quite bad.

Yes, sorry, it could be from my side. Just a moment, I will repeat this very, very quickly. It's about the payout ratio for this year. Yeah, yeah, great, yeah. Okay.

Yeah, I got it, thank you. So we cannot provide a payout ratio as of today. What we've told the market always, and this is the policy we have, is that what we do is we, based on the budget of growth specifically on the banks, we set up the capital requirements for sustaining that growth. After that, the excess profits we get from the subsidiaries, if there are no important M&A transactions inside. What we do is pay dividends. The dividend announcement should be stated by the board. I really don't remember if it's February or June. Cesar, you can help me with that.

April.

This is April. So in April. And then we will make it public. But I would think that what is important is the philosophy and the policy we have around dividend and credit ratios.

Okay. Thank you very much, Zafrako. Very clear.

Thank you. And the next question will be from Andres Soto with Santander. Please go ahead.

Good morning to all, and thank you for the opportunity to ask questions. Maybe a follow-up on that last response. Gianfranco, you said your dividend payout will depend on the capital levels and the subsidiary levels, and you will apply to distribute any excess of that. What are those minimum thresholds that you have set for your subsidiaries for the purpose of distributing dividends to a parent company and from the parent company to shareholders.

Cesar, can you take that one, please?

Yes. Yes. I think the main restrictions came from the banks. In the case of BCP, it's a core equity tier one of around 11% of the minimum point that is the declaration of the dividend. In the case of Nibanco, Peru and Ivánco, Colombia is 15% under the same rules. And for this year, we are maintaining the profits in some vehicles in particular, like Pacifico, that has endured some losses. That's the basic rules. And according to what Gianfranco mentioned, we serve funds for M&A expectations, the CREALO projects, and the rest is going to be paid as dividends, and our expectation is to have a sustainable and increased dividend declared at the beginning of the year.

Thank you, Cesar. And can you remind us what is the size of that fund that you had said as a rainy day fund and also for M&A purposes? How much is that? In the past, it used to be 800 million.

Is this that level? Yes. At this point, We have in liquid funds all the amount that we raised from the bond issue during the crisis. This is the $500 million. And above that, we are going to maintain some additional excess liquidity, but I will say a relatively small amount, not in the vicinity of the $2 billion that we had in 2019. If you see our balance sheet, you are going to see a lot of cash, but we also have the bond. And we have all the depositions as a reserve, and that's when we are considering some liability management operations down the road.

Perfect. Thank you so much.

Thank you. The next question will be from George Friedman from Citi. Please go ahead.

Thank you very much for taking my question. I have two questions. The first one related to the prospects for your credit growth this year. You were highlighting in the presentation that you expect long growth in the structural portfolio to be at about 8% to 10%, but with a real GDP of only 2.5%. Last year, GDP grew 13%, and of course, You departed from a higher basis, but the portfolio grew only 3% slightly below that. So how do you believe you can achieve these levels of growth in light of the deceleration in the economy? And what would be the drivers for that and whether I know competition might get more intense or not? Thank you.

Thank you, Diego. Leo, can you take that one on DCP and our complementary bank?

Yes, yes, for sure. Actually, we have to separate the loan portfolio when you include the Reactiva government-backed portfolio, no? We expect that that portfolio, including Reactiva, is not going to grow that much, and the opportunity is to substitute those portfolios those loans that are going to be repaid this year. So we see a great opportunity in the PIME segment, especially, that portfolio is going to be amortized, and we are going to substitute a relevant part of that portfolio with higher margins. And also, we expect a significant – a strong demand in – in the mortgages and in the consumer segment, because what we are seeing is that levels are getting up to pre-COVID levels in terms of the size of portfolio. So most of the growth comes from... recovery to pre-COVID levels, but a relevant part comes from substituting the reactiva portfolio.

Just to complement Diego's comment, at Nibanco, as I mentioned before, the last quarter, there's a seasonality at Nibanco, but last quarter was a record quarter, historically record quarter, We expect the microfinance and SME businesses to keep growing. Those were the segments that were hit the most along the COVID crisis. We are seeing a lot of activity there. So that will complement also what Diego just mentioned.

Perfect. And just a follow-up there. How much do you think Mi Banco could represent in terms of total loans? It represents approximately 10% of the total portfolio nowadays. Not sure if you have an ambition of having a bigger participation of Mi Banco in the future.

The answer is yes, but it's in the long run. We strongly believe that one of the main avenues for growth at Credit Corp is growing in microfinance. Not necessarily only in Peru, but also in Colombia, where we are operating today. Still a tiny operation, but we're very happy with the results of that operation. So we may be quite active in other countries in Latam in the upcoming years.

Perfect. And my second question, very quickly, is on the effective tax rate. We had some volatility today. of effective tax rates during the past quarters. So just wondering, to come up with your guidance, what you are envisioning for the effective tax rate in 2022. Thank you. Rafael?

Yes. As you mentioned, we have had a lot of volatility during last year. At some point, we reached 4.2%. 14 soles per dollar at year end. We were around four. Now, with all the volatility, we are in 384. We think that we are going to be around these figures that are below what was our expectation only a couple of months ago. But I think at this moment, we are to have to counterforce the political risk with upward pressure and a significant balance surplus in the commercial front as a positive and downward pressure. The combination of both suggests that we are going to be around these levels.

I'm sorry, which levels? I missed that part. We are now at 384. In this vicinity. Okay. Okay, perfect. Thank you.

Thank you. The next question will come from Alonso Garcia with Credit Suisse. Please go ahead.

Hi, good morning, everyone. Thank you for taking my question. It's actually a follow-up on the margin side. First, I mean, just wanted to, if you could remind us of your sensitivity to every 100 basis points increase in the Peruvian interest rate. And second, I mean, you mentioned the press release that you see some pricing pressure in the quarter. affecting especially the wholesale portfolio. So I just wanted to hear from you if you continue to see that pressure on pricing for 2022 in the wholesale segment, and if you are starting to see this kind of pressure also in other segments of the portfolio. Thank you.

Maybe I can take that one. Yes, sir. We are seeing a lot of competition.

Yes, we have a sensibility of the portfolio that implies around several basis points in mean. Let's say if we increase the rates in a parallel movement, it's a little bit below 200 million soles at this point. assuming a parallel move in the curbs. And as you imagine, this is an accumulative effect over the years. That's the sensibility of our portfolio. We are seeing gradual translation interest rates in the wholesale portfolio with pressures, but we are seeing the translation higher interest rate. And we foresee some delay in the translation on the higher rates of the consumer portfolio, the revolving lines. This is going to happen. but with some delay. That's what traditionally happens with our portfolio. The decrease is with some delay, and the increase is also with some delays in the higher rates and revolving lines. So through the year, we are going to be the gradual translation of the increased interest rate that we are seeing right now.

And this is just to clarify, seven basis points plus seven basis points for every 100 basis points increase, correct?

In mean. Yes. The sensibility is in mean, in mean.

Yeah. Basis points in mean, yes. Yeah. Positive for every 100 basis points increase.

Yes. Parallel movements.

Yeah. Okay.

Thank you. Thank you. And the next question will be from Yuri Fernandez with JP Morgan. Please go ahead.

Hello, good morning and thank you for the opportunity of asking questions. I haven't followed up on margins on this repricing topic. If you can provide some color on reactive alliance for the guys that are expiring, are you able to move the price to the normal average, like to the historical pre-COVID levels, or are you facing some kind of resistance from clients to move prices up again? And I guess my point here is to try to understand your new expansion, right? Because you are guiding for 20 to 50 bps in expansion this year. And basically my question is regarding 2023, right? So we should expect your needs to keep evolving 20 to 50 bps every year. So maybe by 2023, 2024, we may see margins back again to those five, five and a half percent levels. And I guess we're pricing here on Reactiva it's important to understand that space, right, before you'll be able to reach that faster or it will take some more time. And I can ask another question later. Thank you.

Sure.

I'll take that one. Yuri, great question because it helps us in a follow-up on what we mentioned in the last call. We've already seen, actually, I believe it's close to 25% of what is dispersed in Verapira. have already been repaid. That's one important piece of information. The other one is that specifically, especially at Nibanco, where the difference in rates, the relative rates as compared to the traditional loan rates was important, was large, we've seen already a lot of activity, as I mentioned, the last quarter, and we haven't seen any negative impact in terms of the willingness of those clients to get their new loans at market conditions. So we really do not expect any noise going forward. And obviously, the further we move in the year, the more of the reactiva loans will be repaid, and we should be back into normal by the year end. And maybe, I don't know, anything between 25% to 35% of the total reactive loans have been refinanced, and that will trickle down as we move forward. In the second part of your question, we do expect means to go back to normal because of the reasons Cesar mentioned before, and I'll be a little bit more specific in my kind of remarks.

No, super clear. Yes, sorry to complement what Gianfranco, this is exactly what he says. The only thing that I want to remember you is that the cumulative effect of the increases rates over time because you reprice the portfolio gradually, so we will see an increase in top-line interest rates for a couple of years very clearly. And the portfolio reprices.

That's super clear, Cesar, and Juan Franco, super clear. Can I just ask on fees? We discussed expenses, NII, margins, but fees are missing. So my question is, should we expect fees to grow more or less regarding like similar to our long growth? Just checking the pace of growth because this year, as you said, was a normalization for volumes and fees grew 20%. But I'm not sure how fast can fees grow in 2022. Thank you.

Go ahead, Fernando. Yes. I would like to remember that during 2020, we have almost 114 or something days of severely restricted level of activity in the country. So the transactional volumes dropped significantly. In this regard, the figures that you see in 2021 are a reflection of the recovery of these volumes of activity and transactional coupled with increased capabilities, distribution capabilities have developed. So we are not going to see this kind of additional rebounds down the road, but we see that the fee income probably are going to grow a little bit faster than before the pandemic, in which were very low, at very low single digits, propelled by our increased transactional capabilities, but not a repetition of the 2021 that is rebound from exceptionally low levels at the beginning of 2020.

Perfect. Thank you very much.

Thank you. And the next question will come from Carlos Gomez with HSBC New York. Please go ahead.

Hello, good morning. Thank you for taking my question. You refer to the reduction in fees from asset management because of outflows from mutual funds in Peru and the fact that some of this money has gone to offshore accounts. Can you quantify that and can you tell us if that has continued? And when I say quantify, can you tell us how much the funds will be charging in Peru and how much they will be charging in your offshore capabilities? And I know it's only one question, but I noticed that we are getting to the end, and nobody has asked you about politics, and you don't have a government. What do you expect from the public sector? And, again, in the past, we have talked about macro stability and muddling through. Is that still your scenario for the next three years? Thank you so much.

Sure. Good morning, Carlos. I'll start with the second part of your second question. And actually, I'm surprised you're making that question because we're in a very stable political and macroeconomic country. Actually, the level of uncertainty is very high. As a matter of fact, we don't have a prime minister as we speak today. There's been a lot of noise. there's no clarity whatsoever on what the next cabinet is going to be, and therefore what the roadmap of this government going forward is going to be. Which is a pity because as a country, on the macro side, as Cesar mentioned at the beginning of the presentation, We are having tailwind. The level of commodity prices, specifically copper, is basically at record levels. We are at record levels of production. Therefore, both the fiscal deficit, the commercial balance, and so on have been very positive last year. So we could be growing instead of 2.5% this year at maybe double that number. And what is more important, and I believe I made this comment before, what is more important is that at 2.5% of GDP growth, the level of poverty is not reduced, whereas at 5% or more, the level of poverty is reduced. Therefore, the social impact of that growth is much more relevant. I don't know if I got the second part of your question. Sorry for not being more specific, but that's where we stand today. Maybe, Cesar, you can answer the first one. First part, sorry.

Yes. Yes.

As you mentioned, Carlos, we have a severe impact during the election period, and we lost almost 50% of the mutual funds in Peru. This is more than $2 billion equivalent of funds that we draw. And we have captured significant parts of this in our international platforms. But we have to exchange our 100 basis points fee for a quarter of that in a non-profit area distribution fee that we can collect in the international platform. So we have an impact in this regard. And I would also like to highlight that At the beginning of the process, the P&L impact was muted because we charged early withdrawal fees or load fees. But down the road, we have a less profitable base that we need to rebuild. But the impact has been relevant.

And has the outflow continued into this year?

No. No, it hasn't. We monitor carefully the output from different fans, the transference from different vehicles to outside. And in the last month and a half, I say the figures are pretty small or even positive in specific weeks.

Thank you. And if I can follow up on the politics, do you – Again, do you expect this administration to continue for the next three years, and do you expect any legislative changes that could affect the bank?

Unfortunately, I do not have a crystal ball.

Thank you so much.

The next question will be from Fergie Dubin with Harding Lovner. Please go ahead.

Yeah, good morning. Thanks for the call. I have a question and just confirm some facts. So the first fact I want to confirm is what is the percentage of reactiva loans as a percentage of your total loans today?

Okay. It's around 13% figures.

Okay, so it's 13%. Yeah, you expect that to decline to roughly what level by the end of 2022?

That should be around maybe eight. This is enough number. I don't know, Cesar, if you have the exact number, the expectations. That should be... Maybe to 8%?

We don't have a specific program. We should have a reduction of around half, only a small precision. 13% is Mibanco, and BCPS is slightly higher, between 14% and 18%, depending on retail or wholesale.

I'm talking about the consolidated level right now. So roughly speaking, from 13% to 8%, correct?

Yes, roughly, yes. Okay. Just to be very specific, unless there is a change in the conditions by the government. As of today, that's the expectation.

Okay, got it. So given that and given all that you talked about with respect to the rates already, so if I look at the chart, on page five that you showed, right? So you showed that the rates went from, even from September 21 to January 22, they went from 1% to 3%. So that's an increase of 200 bps. And you said there's potential for another 100 bps increase this year. So cumulative, you're looking at 300 basis points of cumulative increase over the course call it 18 months or so. So help me understand, you know, I know you talked about the sensitivity of seven bips of NIM expansion to your 200 bips in rates, but qualitatively, I'm not sure I understand why is it so low? Because you have 50%, 60% of your deposits is basically low cost, what I would call cash deposits, right? And a big chunk of your loan book is corporate loans, which you'd reprice. fairly quickly, so why don't you have higher interest rate sensitivity and why don't you have higher NIM extension?

Okay, probably I can take that. I think two different stories. In the case of Nibanco, most of the funding of Nibanco is a wholesale funding and the part that is retail funding has also a relatively high sensibility. the expansion in Nivanco is more rich. And this is part of the answer. In the case of BCP, we have two portfolios. The dollar portfolio is going to have an increase, but much more muted. And we have a significant part of the portfolio in dollars at BCP, as you can remember, around 40%. The other part is in solids. And in the solids portfolio, we have a duration of 2.2 years. So we are going to see the full impact in 2023. I don't know if I am clear. You have, the Bangkok has less sensibility due to the funding structure. In the case of BCC, you have solar portfolio that is not going to have 200, 200 basis points increase, and you have the solar portfolio. And the solar portfolio has a duration of 2.2%. So gradually we are going to pass through this interest rate and it's going to be a lot in the high rates and revolving portfolios in which you don't pass the rates gradually, but in chunks, quarter by quarter, and gradually over time. I don't know if that helps.

Well, that's actually a very good insight, and I wish you articulated that up front because I don't think it was very clear, but now it is clear. Just one follow-up question. So when you talked about dollar portfolio and BCP, First of all, what's the duration of that dollar portfolio? And second, basically that portfolio is repricing not with SOLUS rates, right? But with US, what is it like? What kind of a benchmark is that LIBOR or what is it tied to and how does it reprice? Thanks.

Okay. The duration of the dollar portfolio is shorter. most of the arrays are fixed, but are fixed at the beginning based on LIBOR reference that is going to be going to software as we speak.

So it is tied to LIBOR, right, and it's shorter duration? Yes. Okay, understand. Okay, that's very clear now. Thank you.

Thank you. And the next question will be from Alonzo Aramburu with BTG. Please go ahead.

Yes. Hi. Good morning. Thank you for the call. I wanted to follow up on expenses. It seems like the guidance on efficiency implies somewhere around double digit growth of expenses. You had mentioned last year some initiatives like going to a hybrid labor force with reduction of office space. and reduction of the physical network as well. I mean, where would you stand in those initiatives, and are you counting on those to help on the efficiency side this year?

Okay.

As we mentioned previously, we are working in the reduction of the footprint that when we reduce the footprint, as we mentioned before, we have at least three basic components. One is the strictly linked to the basic infrastructure, and this is already taken out directly. Another third approximately came from central services that goes with the client. And at the beginning, what we are doing is very very careful not to reduce selling capabilities. So we redistribute in the surrounding areas with a lot of models and monitor that we don't lose distribution capabilities. So this is a factor. And as we mentioned before, the traditional expenses are growing slowly, but in line with transactional activity, we are spending more in IT, significantly more, And the other factor that Gianfranco also explained clearly was the transformational ones that we need to see in another part.

Okay, so the net benefit from these reductions of office space and physical footprint is not significant, at least in the short term. Is that fair? Yeah, that's correct. Can I ask a second question about YAPE? I believe you were planning on offering microloans. Can you comment on where you stand in that plan?

Francesca?

Sorry, can you repeat the question on microloans?

Yes, through YAPE.

Ah, okay. So what we're planning to do for the next two quarters is to begin using BCC's analytical models and use YAPE as a distribution channel to understand the type of loan, the amount of loan, the duration of the loan, the type of customer that will prefer this type of channel and to begin to understand the business model around a YAPLASA distribution channel.

Okay. Thank you.

Ladies and gentlemen, this concludes our question and answer session. I would now like to turn the conference back over to Mr. Gianfranco Ferrari, Chief Executive Officer, for closing remarks.

Thank you. As predicted in previous meetings and calls, at the end of 2021, we consolidated our return to pre-pandemic profitability levels after two years of unprecedented challenges. We're in the process of closing this chapter with a firm belief that we have adequately managed risks and fine-tuned our capacities to cease potential growth and profitability in all of our businesses. I am convinced that by following our purpose and reaffirming our strategy with a clear focus on digital transformation and sustainability, we have effectively steered our business through choppy waters. Moving forward, Uncertainty will continue on the sanitary, macroeconomic, and political fronts, and will continue to manage each as adeptly as we have in the past. This said, there's one point that we mustn't lose sight of. Our fundamentals remain strong. As you can see in our guidance, we see 2022 as a transition year in which cost of risk will remain low in comparison to pre-COVID levels. but will veer back to normal by 2023. During this transition, we expect NIM to be covered for several reasons. First, an increase in reference rates in line with central bank trends worldwide. Also, a reduction in government-sponsored loans. And finally, an increase in retail and local currency loans. Even with the profitability levels shown in the last two quarters of 2021, We expect to maintain a sustained ROE in the high teens in the long run. To make this possible, we will continue investing in digitalizing our traditional businesses and in disrupting ventures. At Credit Corp, we see beyond our regional context. We have also set our sights on the global meta-sense for consumer behavior and new technologies that offer unparalleled opportunities in the medium term to provide better products and services more efficiently, and more importantly, to drive financial inclusion in our underserved market. At the onset of the pandemic, we were quick to reaffirm our digital strategy and accelerated our investments on this front. Over the past semester, we have closely examined Credit Corp's innovation model and reviewed its governance to strengthen our capacities to develop disruptive ventures. If we combine the agility and technology of these ventures with the competitive advantages of our core businesses, we will strengthen credit cards leadership. We will share this journey and our new vision of innovation management at our Investor Digital Day, which we will be hosting on March 15th in New York and March 16th in London. I would like to invite you all to this event. It will really be a pleasure to see you all again. Finally, I would like to take the opportunity to share with you that after 26 years at BCP and the last four as CEO, I am thrilled and motivated to assume the leadership of TrailCorp as I work hand-in-hand with our top-notch team. Our passion for innovation, focus on clients, and most of all, our commitment to the countries where we operate, we direct our efforts to fulfill our purpose. to contribute to improving lives by accelerating the changes that our countries need. Thank you very much.

And thank you, sir. And thank you, ladies and gentlemen. This now concludes today's presentation. You may now disconnect. Take care.