Credicorp Ltd.

Good morning, everyone. I would like to welcome all of you to the Credit Core Limited First Quarter 2024 Conference Call. A slide presentation will accompany today's webcast, which is available in the Investors section of Credit Core's website. Today's conference call is being recorded. As a reminder, all participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you have connected to the call using the HD web phone on your computer, please use the keypad on your computer screen. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Now, it is my pleasure to turn the conference over to Credit Core's IRO, Milagros Seguenas. You may begin.

Thank you and good morning, everyone. Speaking on today's call will be Gianfranco Ferrari, our Chief Executive Officer, and Cesar Rios, our Chief Financial Officer. Participating in the Q&A session will also be Alejandro Pérez Reyes, Chief Operating Officer, Francesca Raffo, Chief Innovation Officer, Reinaldo Llosa, Chief Risk Officer, Cesar Rivera, Head of Insurance and Pension, Carlos Otello, Mi Banco, Chief Financial Officer, and Diego Cabello, Head of Universal Banking. Before we proceed, I would like to make the following safe-haggard statements. Today's call will contain forward-looking statements which are based on management, current expectations and are subject to a number of risks and uncertainties, and I refer you to the forward-looking statement section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. Gianfranco Ferrari will start the call with opening remarks about our improved microenvironment and brief comments on our strategic initiatives, followed by Cesar Rios, who will present in more detail the evolution of key macrofigures, our financial performance and revised outlook for 2024. Gianfranco, please go ahead.

Thank you, Miriam. Good morning, everyone. Thank you for joining us. Despite our strong structural macroeconomic figures, the persistent fragility of the government and its investment and economic growth has prompted S&Ps to downgrade our sovereign credit rating to triple B minus. This downgrade is expected to affect the investor appetite for our country. In our view, however, we do not expect the economic growth agenda that has been put in place this year by the executive branch to change prior to the 2026 general elections. The overall economic outlook remains positive with expected GDP growth revised upward to 3 percent in March from the previous projection of 2.5 percent commented in our last call. Beyond better weather conditions benefiting the fishing, agriculture and textile sectors as El Niño has ended, several factors support a gradual recovery of economic activity during the upcoming quarters. Copper and gold prices have increased significantly and are expected to remain high. A lower inflation rate, which will benefit consumers, and lastly, the stimulative effects of countercyclical economic policies, such as a lower central bank policy rate and higher dynamism of public investment, which will start to feed into the economy. Despite its challenges, the Peruvian government has placed explicit focus on promoting investment to contribute to business confidence recovery. In the first quarter alone, awarded infrastructure investments reached 3.1 billion dollars. Additionally, the government's plan to establish a unified office for infrastructure investments marked a significant step forward. Economic expectations indicators have trended upward since the end of last year. Anticipated long growth is on the horizon as private sector confidence strengthens. Additionally, inflation stands low compared to other Latin American countries and formal sector wages have experienced recent growth. The Congress' recent approval of the seventh withdrawal of pension funds underscores again the need to reform the current private pension model in Peru. Turning to our first quarter results, we delivered a strong ROE of 18.2 percent, including the impact from the reversal of provisions at BCP and Nibanco. This was achieved in the context of weak long growth and an economy that is slowly starting to recover. Risk-adjusted NIN remain resilient, reflecting our discipline interest rate management strategy, further supported by lower provisions and our leading low-cost funding position. Additionally, our strong solvency has allowed us to increase our dividend to 35 solvers per share while also contemplating our plans for continued sustainable growth. Our resolute focus on advancing innovation and strengthening our digital capabilities has fortified our competitive modes. This has not only elevated our relationship with current clients but has also contributed to expanding financial inclusion. With respect to the macro backdrop, as I just mentioned, we anticipate a sustained economic improvement during the year and Cesar will discuss this in more detail shortly. Now moving on strategic developments, we remain focused on strengthening our core businesses while also complementing them with disruptive initiatives. As one of the few banks to embrace self-disruption to remain ahead of the competition anchored in allowing clients to decide where and how they bank, has been evident since Credit Corp's inception. These strategic initiatives position Credit Corp for continued digital advancement and customer centric growth. At Nibanco, which mainly provides financing to micro businesses, we are reaffirming our hybrid strategy. This strategy leverages high-touch in-person visits from relationship managers and digital tools, including centralized risk assessment. After making significant adjustments in terms of pricing and origination guidelines over the past six months, we are observing improved payment performance in new vintages. Additionally, we are now selectively growing within the lower ticket, higher yielding segments that have relatively better risk profiles. Our planned advancements are on track and we expect a rebound in profitability at Nibanco this year. I want to take a moment to address a question we have been hearing from you on the road, related to the contentional overlap of Nibanco and YAPE clients. YAPE prioritizes consumers at its lending business and Nibanco provides financing mainly to micro businesses. While we acknowledge that there is little distinction between the pocket of the individuals and the micro entrepreneurs, the lending business at YAPE is at a very early stage and we are a long way away from seeing an overlap. Now, let me turn the call over to Cesar, who will discuss in more detail the micro environment and the operational and financial performance of our business units.

Thank you, Gianfranco, and good morning everyone. As Gianfranco mentioned, we deliver a strong overall operating and financial results. As I discuss the highlights of the quarter, I will focus on the -over-year results, which are not impacted by seasonality. Our long needs shift towards retail, coupled with the repricing of our dollar book, allow us to deliver higher needs despite a reduction in interest rates in solids. Total loans dropped .1% measuring average daily balances, driven primarily by lower volumes in wholesale banking and amortization of government program loans. The share of low-cost deposits in funding base stood at 53.7%. NII grew .4% boosted by the aforementioned dynamics. Other core income, which is the sum of the income and gains in FX operations, also evolved favorably, boosted by BCP and to lesser extent by credit core capital. Core income at BCP benefited from amortization initiatives at YAPE and solid transactional activity through credit and debit cards. Luckily, insurance and the right of results dropped 5.8%, which reflected a reduction in income from disability and survivorship products in the life business. The cost of risk increased to 2.3%, which incorporates a 250 million releasing provisions associated with El Nino. Throughout this presentation, our analysis of provision expenses at cost of risk will isolate the impact of El Nino provisions registered in the fourth quarter of 2023 and reversed in the first quarter of 2024. We will refer to these adjustments as isolating the impact of El Nino provisions. After adjustments, cost of risk increased to 3%. Devolution was driven by a deterioration in payment capacity in SME PIN and credit cards and by a downturn in payment performance in consumer loans. The NPL ratio rose 77 basis points to .2% as the link was increased across various segments and in older vintages in particular. As a result, NPL coverage stood at 93.5%. All in all, we delivered strong results on the back of solid growth in our and our transnational activity and discipline and cost control. In addition, we recently announced a 35 solid dividend per share payout as we pushed capital levels closer to target across our subsidiaries. Next slide, please. The Peruvian economy is gradually recovering from a very challenging 2023. Economic activity grew .8% year over year in February. Its best spring in almost two years. Furthermore, all the expectation indicators from the macro central bank survey stood in the optimistic range for the first time in five years and remained in that range in April. Even though we expect a slowdown in economic activity in March, a rebound should follow in April. The global economic outlook has also improved. Recently, the IMF upgraded its 2024 world GDP forecast as positive indicators continue to point towards a soft landing. Importantly, commodity prices, particularly for copper and gold, which combined represents around 50% of our exports, are raising significantly and are expected to remain high. Peru has accelerated public investments, which increased 40% year over year in real terms in the first quarter, representing the highest touching risk reported in 14 years, excluding the pandemic. Proinversion announced that as of April 2024, the government has already advanced 48% of its 2024 goal to award $8 billion in public private investment projects. This goal is more than triple the amount awarded in 2023. This positive backdrop has been clouded somewhat by a standard and poor downgrade of Peru's sovereign credit rating to the lowest rank to qualify as an investment grade country. The agency indicated that this change was motivated by political uncertainty, the actions of a fragmented Congress and a weak executive branch, which negatively impacted investment sentiment in the private sector and constitute an opportunity cost to growth. In this context, Peru's capacity to rebuild fiscal space is challenged. Given the aforementioned and despite political noise, we forecast the new GDP will grow around 3% of the highly negative shocks last year due to poor weather conditions and heightened social turmoil. Next slide, please. The United States' strong economy continues to surprise. In fact, due to better than expected economic data and hot inflation readings, market participants have pushed back their Fed rate cut expectations once again. Hence, higher for longer dollar rates will continue to pose a dilemma for emerging markets. In Peru, inflation has continued to slow and stand within the central bank target range. Since September 2023, the country's central bank has put its policy rate 175 points. In Colombia, inflation remains among the highest of the region and stood at .2% as of April. Accordingly, the country's central bank has adopted a cautious stand and has lowered its policy rate by 150 points since December. Finally, in Chile, inflation is gradually converging toward target. In response, the central bank has cut its rate by 475 basis points since peak. Next slide, please. BCP delivered a strong result, which in part reflected a reversal of provisions set aside last quarter for anticipated El Niño losses. Analyzing key quarter over quarter total loans measured in average daily balances fell .4% driven by a contraction in wholesale loans and repayments of government program loans in SMEP and segments. NII rose 1.5%. This evolution was laid by a drop in the funding costs after term deposits were renewed at lower rates. Interest income increased quarter over quarter as we profitably managed our liquidity balances in a of lower loan growth. The provisions expenses after isolating the impact of El Niño provisions increased mainly mortgages due to a base effect and SMEP payment due to weaker payment capacity of clients in a context of gradual economic recovery. Other income grew .1% fueled mainly by a strong volume of credit card transactions to higher fee channels and secondarily by fee income at YAPI. On a year over year basis, NII grew .3% driven by long mixed shift towards retail and pricing improvements. Loan loss provisions excluding the reversal of El Niño provisions increased .7% driven by deterioration in payment capacities in SMEP and credit cards by a downturn in payment performance for consumer loans. Other income was up .5% underpinned by solid growth in the fee income through YAPI as well as credit and debit card transactions. Operating expenses increased .1% driven by an act chicken expenses for a specialized IT personal and disruptive initiatives. In this context, BCP's contribution to ROE stood at 24.7%. Next slide please. YAPI continues to grow and in March registered more than 11.5 million monthly active users who conducted an average of 36 transactions per month. 75% of these active users already generate fee income. Improvements in the lines of business and functionalities is pure growth in engagement. Fee income and MPS at the end of March. YAPI used an average of 2.2 functionalities a month. Fee income generated through YAPI increased .1% quarter over quarter and the MPS reached 78. As a result, YAPI obtained an income per active user of 3.7 solids while expenses for active users dropped to 3.9 solids due to seasonal factors. YAPI is closer to reaching break even in coming months. Next slide please. To reach break even, YAPI is accelerating income growth by diversifying its sources of revenue. To achieve this, it has been adding functionality to three lines of business. YAPI payments business is the top revenue producer and has gone from offering P2P payments to possessing a portfolio of fee generating functionalities where mobile top up is the most mature and bill payments, payment with POS and checkout functionalities are gaining traction. Within the financial business line, in addition to the margin received for floating base on deposit we have two products that generate income, lending and insurance. Within lending, disbursements of single-spalments and multi-spalments loans grew 2.2 fold year over year. In insurance, we currently provide a statutory accident insurance for vehicles and plan to extend our offerings in the short term. The financial business line is still in the early stage. We are developing differentiated risk management capabilities based on the unique relationship level of engagement that YAPI has built with its users. Finally, within the marketplace business, we have new features such as YAPI promos and YAPI tienda. YAPI promos offers YAPI a discount for consumption and affiliated restaurants, cinemas and other establishments. The growth merchant volume for YAPI promos grew three fold year over year. YAPI tienda was launched in commerce. Next slide please. Moving on to Nibanko. On a quarter over quarter basis, total loans measured in average daily balances fell .1% driven by stricter origination policies as we continue to fine tune our risk models and processes. Additionally, we are selectively starting to grow our small ticket higher yield loans. NII increased .4% mainly due to a drop in the cost of funding which was triggered repricing of the funding base. In this context, NIN increased seven basis points and stood at 13.4%. Provisions, isolating the impact of NINU provisions increased .2% due to higher delinquency related to all vintages. For year over year perspectives, NII was up .3% due to an uptick in interest income. As active loan pricing management mitigated the impact of a loan contraction. The upswing in NII was offset by a rise in the funding cost. Provisions, excluding reversals for NINU provisions fell .8% mainly due to a base effect given that the first quarter of 2023, more provisions were required due to social and climate events. Operating expenses rose 2% over the same period and remain under control as we continue to invest in digital capabilities. In this context, efficiency stood at .3% year over year with ROE reached 13.2%. Mi Banco Colombia has been challenged by a deterioration in economic conditions, an ongoing high inflation, very high funding rates and a reduction in the interest rate ceiling. We have a profitable growth strategy where we have to slow down the growth rate of the portfolio by emphasizing risk control and efficiency. We remain committed to long-term potential of this business. Profitability of Grupo Pacifico expanded this quarter with ROE standing at 28.9%. In quarter over quarter trends, insurance and the rating results remain relatively flat as favorable dynamics in the property and casualty business were offset by lower results in the life business. It is important to note that the disability and survivorship product continued to demonstrate sequential expansion as the anticipated decrease in revenue was offset by a reduction in claims. Despite flat and the writing results, net income grew 60%, bolstered by a base effect as non-recurring expenses were reported last quarter and an increase in net financial income. From a year over year perspective, Grupo Pacifico net income dropped 2%. This decline was primarily attributable to a drop in life insurance and the writing results which was driven by individual life and group life problems. Improved performance in the property and casualty business notably within property and casualty risk product decoupled with increased net financial income partially offset these dynamics. Next slide please. Profitability in the investment management and advisory line of business increased this quarter with ROE remaining virtually flat at 14.1%. On a quarter over quarter basis, net income rose 9%. This evolution was driven primarily by a seasonal dropping operating expenses and growth in income from our wealth management business where assets under management in US dollars were up 9%. The impact of these variations were partially offset by the elimination of corporate finance business unit and less favorable treasurer results. It is important to note that despite the uptick in net income ROE remained unchanged. This was attributable to the average net equity balance which was boosted by a revolution of available for sale securities as ASB. On a year over year basis, net income increased 8% bolstered by higher income from our capital market business with registered and uptick in transactional activity among corporate and retail clients. Our wealth management business also contributed positively as assets under management rose 19% in US dollars. Next slide please. Now we will look at credit code consolidated dynamics. On a quarter over quarter basis, interest earning assets posted as slide uptick as cash and due from banks offset the decline in loan balances particularly for wholesale loans. The yield in interest earning assets increased four basis points mainly due to a re-rating of the loan portfolio. On the liability side, we maintain our funding advantage in low-cost deposits. Our term deposit volume which has risen but has been repriced downwards drove a five basis points decrease in our cost of funds. Additionally, BCP issued a senior bond as part of a strategy to manage long-term debt. On a year over year basis, our interest earning assets mixed shifted reflecting upticks in retail loans and investment balances as wholesale loans contracted somewhat in line with market dynamics. On the funding side, low-cost deposits continue to be the main source of funding. A favorable funding structure and to a certain extent, the steeping yield purge laid the yield in our interest earning assets to rise 73 basis points and outpace the increase of 37 basis points for our funding costs. Next slide please. Recent balance sheet and interest rate dynamics led NIN and NII to increase boosting core income growth on a quarter over quarter basis. NIN increased 10 basis points and stood at 6.3 percent. We suggested NIN grew 75 basis points to 4.85 percent. If we isolate the effect of provisions for expected losses for El Nino, we suggested NIN fell 16 basis points. Core income was boosted mainly by NII which increased 2.3 percent quarter over quarter. When analyzing the results for fee income and effects transactions, it is important to note that both lines have been affected by our operations in Bolivia. BCP which has adopted its fee structure for foreign transfers to offset the losses reported for FX self-purchase transactions. Excluding BCP Bolivia's operations, all of income grew 1.3 percent quarter over quarter driven by an uptick of 3.1 percent in fee income at BCP driven mainly via fees from credit card transactions with registered growth through the e-commerce channels and by an increase in transactions to Prima due to growth in the volume of payroll contributions. On a year over year basis, NIN rose 46 basis points and we suggested NIN increased in 31 basis points. If we exclude BCP Bolivia operations, core income increased 8.5 percent on the back of NII which grew 9.2 percent driven mainly by BCP via an uptick in transactions to YAPI credit cards and debit cards. Next slide please. Let's look at the dynamics for non-performing loss. On a quarter over quarter basis, growing non-performing loss was led by BCP followed by the bank. Within BCP, MPL growth was driven by consumer mortgages and wholesale and partially offset by SMEP. In consumer, MPL growth was related to refinancing of vulnerable clients. While growth in mortgage MPL was fueled by clients that also registered delinquency in other products. The MPL volume in wholesale was impacted by refinancing for a specific corporate client. This evolution was partially offset by a contraction in MPLs and SMEP which reflected the impact of long collateral honoring process for government loans. At MiBanco, delinquency was concentrated in old vintages where clients were affected by macroeconomic social environmental impacts in 2023. On a year over year basis, MPLs increased mainly to BCP and MiBanco. Within BCP, MPLs grew mainly to consumer which experienced an uptick in refinance loans and delinquency among old vintages and through mortgages after the payment performance of already indebted clients deteriorated and refinancing roles. In MiBanco, the drivers of MPL growth year over year were the same as those seen in the quarterly analysis. In this context, the MPL coverage ratio stood at .5% while MPL coverage ratio isolating government programs stood at 97.2%. Next slide please. Moving on to provisions, the cost of risk stood at 2.3%. Isolating the effect of El Niño provisions, the underlying cost of risk increased 45 basis points quarter over quarter to a stand at 3%. Let's go through the dynamics for provision expenses which isolate aforementioned impacts. Provisions grew 16% quarter over quarter driven by a base effect in mortgage with reflected reversals for specific products last quarter and in SMEP which reported higher write-offs and a deterioration in payment capacity in a context of gradual economic recovery. At MiBanco, growth in provisions was due to higher delinquency related to old vintages. On a year over year basis, provisions rose 46.9%. Growth was fueled by a deterioration in payment capacity in SMEP and credit cards and a downturn in payment performance in consumer loans. The aforementioned was partially offset by a drop in provisions of wholesale banking at MiBanco. Next slide please. We will review the evolution of efficiency from a year over year basis to isolate the impact of seasonal effects. Operating expenses grew .9% year over year driven primarily by disruptive initiatives at the credit card level and within core businesses at BCP. Expenses for disruptive initiatives at credit card level increased 31.8%. The most significant expenditures were in YAPE and Tempo which together accounted for 60% of this quarter disruptive expenses. At BCP, core businesses were fueled growth in expenses through an uptick in IT expenses related to moves to attract more specialized digital talent and increased use of the cloud as clients become more digital and transactions level increase. Operating leverage remains strong at BCP core businesses due to control expenses. At MiBanco operating expenses remain under control and operating income is starting to turn around. In this context our efficiency ratio is stood at .6% in the first quarter of 2024 down 70 basis points year over year driven mainly by positive operating leverage at BCP. Next slide please. First quarter profitability was sustained by solid results in our universal banking and insurance businesses and by a recovery in our macrofinance business in addition we benefited from a considerable uptick in the performance of our investment portfolio at the holding level. In this context ROE for the first quarter stood at 18.2%. Now I will move on to our updated guidance. As previously explained our GDP growth guidance improved to around 3% regarding our profitability drivers. First given the low demanding wholesale banking and still cautious origination volumes in retail banking at BCP and MiBanco we expect long road measure in average daily balance to be at the lower end of the guidance range. Second we expect mean cost of risk and efficiency to stand within our guidance range. Finally we are observing better than expected dynamics for fee income and insurance and the writing results. Given all of the report mentioned we maintain our ROE guidance for 2024 around 17%. With this we can turn to the Q&A.

We will now begin the Q&A session. If you would like to ask a question please signal by pressing star 1 on your telephone keypad. 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 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 is from Ernesto Gavilando with Bank of America. Please go ahead.

Thank you. Hi, good morning. Gianfranco and Cesar and good morning to all your team. Thank you very much for your presentation and congrats on your better than expected net income and the ROE for the quarter at 18%. My first question will be on fees. We saw a strong expansion in fees of 20% on a yearly basis. You mentioned that we're starting to see the benefits from YAPE in your revenues. Just wondering if there is a target on how much YAPE could be contributing to your fee income revenues and what can we expect for the growth of fees in 2024?

Good morning Ernesto. I'll take a more conceptual answer and then I'll ask Cesar to the details. Regarding the impact on YAPE in terms of fees, it's a quite complex question because what is happening with YAPE is that there's sort of a J curve in terms of businesses and therefore income generation. So each target we set is, we surpass the target every month, quarter or whatever. So we're very positive on what YAPE is going to have a positive impact in the long run, in the minimum and long run. On the other hand on fees in general, I would argue that what is paying off is that the strategy we launched a few years ago, which we call war on cash. We've been heavily investing, mostly at DCP, in how to become the payment hub in Peru and obviously this is paying off. I'll ask Cesar to complement me into the details.

Thank you Gianfranco. As Gianfranco mentioned, the main structural drivers are long-term capabilities that we have been building. I would like to highlight that this .5% is slightly distressed by the situation of Bolivia. I would say that a more structural fear will be in the low teens. The situation in Bolivia is that we charge a higher fee and we register a loss in the FX transactions. But if you take out this, we can be in the low teens and it's driven by high transactional activity, the expansion of different products that we are introducing and scaling very rapidly in YAPE. I will also highlight that other subsidiaries of the group are starting to increase a clean growth also that is very positive. That implies that we are starting to have the capacity to navigate with more than two engines at this point.

Perfect. Thank you very much. Then my second question is in terms of regulation. We have recently seen some proposals at Congress. Can you elaborate on what could be the potential impacts to your business? I think there was something related to banking transfers and credit card payments. Also, I don't know if there's a last update on pension with us or pension reforms.

That's a more complex question than the first one actually. Congress in Peru is Congress in Peru. Having said that, I'll start with the last question. Unfortunately, all the efforts that have been done both by regulators, regulators have been technical regulators, and by actually by us as credit corp and so on in reform proposals regarding the pension funds haven't been approved or taken into account by Congress. Unfortunately, they decided to approve a seventh withdrawal. As I've mentioned before, in our opinion, the pension system in Peru in general has been attacked or perforated for the last three, four years. Therefore, unless we do have a structural reform, we are putting in danger the pension system or the retirement plan for Peruvians in the next 10 to 15 years. That's in pensions and I would say that's the most structural reform that is needed in Peru. Regarding specific regulation in terms of fees, yes, it's on and off. If you go back 500 years in time, a lot of fees have been taken out by Congress. It is what it is. What we're doing is trying to, through the technical regulators, trying to work on what's the reasonability for charging those fees.

Is there any potential impact, any timeline for this to be approved or not?

We really don't know. As you mentioned specifically on the interbank fees, it was approved at the first voting scheme. There should be a second one and nothing has happened. That might be approved or not. We really don't know. It's really a question mark. That's why I said this question is more complex than the first one. I would say the level of populism at Congress has risen a lot over the last few years, a couple of years.

Okay, no, perfect. Thank you very much.

Thank you, Ernesto. The next question is from Reynaldo Maloney with Autonomo. Please go ahead.

Hi, everyone. Thanks here for the space to ask questions. Mine is on the guidance. So, what are your perspectives on how you reconcile achieving the growth guidance that's been lagging, but at the same time that you want to achieve the cost of risk guidance, particularly in light of the tight coverage ratio that you currently have? Thank you.

Sure. I'll ask for Sal and Reynaldo to answer that.

And I think probably you are referring to higher GDP expectations, similar loan growth and cost of risk all put together. And I think it's a matter of timing and mix. The GDP growth is actually, the perspective is improving, but our clients are already impacted. So, we have corporate clients that are very worldwide. They are very credit worthiness, they are still very conservative in their demands. And we are more internally being more conservative in the origination of the retained loan portfolio. This implies that even in a higher expectation of GDP growth, the combined loan portfolio is going to be in the similar range that we were expecting with a lower GDP growth. And in terms of cost of risk, and Reynaldo can compliment and correct me. We are also seeing significant improvement in the cost of risk of the new vintages, but the deterioration of the already originated portfolio is still there. And we need to go through a process in which they go through the process of really deteriorating to the point of charge choffing and certain percentage. And after that, these old vintages are going to be extinguished and came down in relative volumes at the end of the year.

Yes, this is basically what Cesar has mentioned. And we expect to see the results of the impact of the new vintages and a better looking economic outlook, especially on the second semester of the year. So, that's why we decided to maintain our guidance in terms of cost of risk for the year.

Understood, thanks. And then in terms of loan growth, do you expect the inflection point also to happen in second queue when you start accelerating growth?

Yes, yes, because we have two factors. One factor is the gradual effect of economic growth, the reduction in interest rates, but in also a less tougher comparison base. Because last year we had a decrease in volumes through the year. So, we need to go through this process, like I would say, like a sunrise, in which we gradually are starting to have less tougher comparisons through the year. I don't know if it is clear. Last year, you had higher volumes at the beginning, lower volumes at the end, and we expect to have a reverse this year. So, through the quarters, we are going to have less tougher comparisons as the year progresses. That's clear. Thank you.

The next question is from Tiago Batista with UBS. Please go ahead.

Hi guys, thanks for the opportunity. I have a follow-up question on Ernesto, one about YAPI. By the way, YAPI is presenting impressive numbers. But you have already achieved 11.5 million active clients, and this is probably half of the adult population in Peru. So, how much more clients can YAPI add? When you look, let's say, four or five years from now, how do you believe will be YAPI's revenues? Do you see any big change in the type of revenues that YAPI will generate or no?

Yes, great question, Tiago. So, let me go back to how the strategy regarding YAPI has evolved. When we launched YAPI, the main focus was to gain users, or Yaperos, what we call Yaperos. When we got traction in that sense, we then switched to usage. As you can see, the level of usage has risen dramatically over the last few years. Nowadays, the focus is how to, on one hand, monetize that usage, and on the other hand, keep releasing new features and new lives of Peruvians. So, regarding your first question, the main target today is not to keep adding new users. However, having said that, the number of users is increasing by roughly 300,000 users per month. But the main focus or the main strategy today is usage and monetization. Regarding your second question, again, I go back to the first question regarding fees, the one made original by Mayor Ernesto Gabirondo, is again, there's a J curve in terms of usage of YAPI. So, going forward, we expect YAPI to have different sources of income. We really don't know exactly today what those sources of income are. Obviously, the ones that are more mature are going more relevant in the near future. Having said that, going forward, there might be new sources of income and we're constantly looking for alternatives and also looking for benchmarks and wallets that have been, that are more developed in their countries that where YAPI is in Peru.

If you allow me to compliment, we have a page in the presentation that helps to understand this because in payments, that is the more mature business, we have starting to add new functionalities and among these, the composition has changed incorporating relative volumes of the new ones. In the second is lending, that is starting to gain traction and relative volumes and in the third place is marketplace. So, we expect to change the composition. We don't know exactly what is going to happen, but if you see as a combination of compounding business, the second ones are starting to, are going to start to grow relative weight down the road.

Thanks for the answers.

The next question is from Tito Labarta with Goldman Sachs. Please go ahead.

Hi, good morning. Thank you for the call and taking my question also. My question is on your margin, you know, good performance there, continues to expand within the guidance range, but just thinking from the evolution from here, do you see any room for the NIMS to continue to increase? I know you expect the loan growth maybe to pick up second half of the year, but you know, it's still been negative, right? So, and even if it increases, it's increasing to the -to-late, to the -to-late single digits. So, you know, given that relatively muted loan growth that's expected, can the margin increase further? And can you also remind us the sensitivity of margins, you know, as rates continue to come down? Thank you.

Yes, we think that we can maintain, sorry, some noise there. I think we can maintain these levels of net income. And I would like to remind you that these levels are more than 100 basis points higher than previous to the pandemic. These are significantly high levels of net income. And at the end of the day, what we actually manage and monitor is the risk adjusted NIMS. That is a combination of these and the cost of risk. Inside the dynamics, we have had the capacity to extend the duration of the portfolio, the Solace portfolio. And due to the international rates, we expect to still have dollar rates in a high range for some time that are going to allow us to converge this further decrease with the change of the portfolio towards more retail base. So I think it's reasonable to expect relative stable NIMS and trying to improve the combination of NIMS and cost of risk shifting the profile of the portfolio down the road. I think this is a reasonable assumption. And when this process converges probably next year, we expect to have a higher, more positive loan growth that impuls the total results for the following years.

Okay, that's clear. Thank you.

The next question is from Yuri Fernandez with JP Morgan. Please go ahead.

Hey guys, good morning and thank you for the opportunity of asking questions. I have a one on your operating expenses and overall efficiency ratio. You are tracking below the guidance and still you are not changing. I understand first Q is seasonal, so maybe this is part of the explanation. But when we look to your breakdown of disruption expenses, we see that line, although still growing a lot, even also decelerating, right? It used to be growing 50, 60 percent over a year and now it's growing, I don't know, like 30 percent over a year. So my question to you is, how should we think about this? Can't you be a little bit more efficient? Thinking on the long term, I understand for these years 40 to 48 percent guidance for efficiency. But what is your goal in the long run? Can we see the corporate running below 40? Anything you can comment. So my question is, is there a chance that this year you surprise us on the long end of the guidance and two, where should efficiency sit? Because now most of the new projects, they are getting more mature. We have the app, you have temple getting bigger scale. So just trying to understand if we could see a positive trend on your efficiency and operating expenses. Thank you.

Good morning, Yuri. If we were not investing in any new technology, I totally agree with you, technology or innovation, I totally agree with you that the cost to income could go down. If you recall, maybe a couple of years ago, we said that by 2025, the disruptive initiatives in terms of cash flow should be cash flow neutral. We are from that position. We don't expect, actually it might be slightly better than what we stated a few years ago. Having said that, we all know there are a lot of new technologies coming up. Specifically, one that pops up in my mind is artificial intelligence. And in the short run, that might have a negative impact in terms of cost to income. Obviously, in the long run, it should improve cost to income. So I would divide the question into two. If we were not investing in any new technologies, the cost to income should go down. Having said that, we are, as a matter of fact, we've recently launched an internal AI, an overall corporate AI program, and we are going to invest in that program. We are,

at

the beginning, mostly focused on cost reduction. However, that's not going to have a positive impact in the short run.

I would like to complement something. If you see our figures, year over year, our expenses have grew almost 7%, 6.8%. But I would like to highlight that this was achieved, including a 31%, almost 32% increase in disruption. But this disruption is building business that are gradually more profitable and gaining scale. For example, these expenses were 9% of the total cost base one year ago. Now it's more than 11%. So what we are going to see is an overall figure that probably doesn't change too much, but a significant change in the composition following the strategy that Gianfranco mentioned, in which the more traditional business gains in efficiency and the disruptive ones still maintain a relatively high cost to income and gains relative weight by building new business and capabilities down the road. This is very visible now in our figures already, with the BCP growing .7% year over year, including almost an 18% increase in IT-related costs.

Thank you guys. I just had a hard time. Your long growth will accelerate. Your margins should be mostly stable from here. And the new initiatives are getting more mature. When you look at cost to serve and the R-PAC of YAP, they are almost crossing each other. So the breakeven is real and getting closer. I struggle to see the efficiency moving from 44 to 46, 48, that is your guidance. And I wish we could see some upside here. That was my point. It's very clear.

You're right. Your view is right. Maybe the only caveat is that if there were new investments to do either innovation or new technologies, we're going to do that. And that might have a negative impact. But your view is right.

Perfect. Thank you very much, Iñigo Francon-Cesar. And congrats for the question.

Thank you. Again, if you have a question, please press star then one. The next question is from Carlos Gomez Lopez with HSBC. Please go ahead.

Hello, good morning. And thank you for the update. You've talked extensively about YAP. Could you perhaps refer to the other initiatives like Tempo in Chile and EO in Peru? How are those advancing so far? Thank you.

I'll go with Tempo and I'll ask Diego to talk about EO or Francesca to talk about EO. Tempo is right on track. Remember, though, that Tempo is way below breakeven yet. Having said that, the operating leading indicators are on track and some of them are outperforming our initial expectations. We filed an application for a full banking license for Tempo in Chile and that should be approved anything between 18 to 24 months. But in a nutshell, Tempo is performing well. We do not expect to break even in the short run and maybe in the next call or in a couple of calls we can be more specific on the Tempo figures. I don't know if Francesca or Diego want to go into the specifics on EO.

Yes, let me compliment a little bit on Tempo and continue on EO. In addition to what Jan Franco said, I think two paths to Tempo which are very promising, one is the transactional base on the prepaid and debit card. It's still growing and now the credit card path is also around 40,000 customers already onboarded and using with a healthy transaction base as well. So GPD is solid and we're on track on those two main entries. So that's very promising and if you look at the brand landscape, whether it's credit card or debit card, EO is on the top 10 brands for Chile. So I think that shows a good positioning. The other venture that you didn't mention is Kulki, the acquiring business. I think that's another very mature business that DCP is now embracing in their SME business to continue to grow because it complements value proposition and it's still growing in the income. The GPD volumes are good and the customer base continues to grow. On the EO side, we're focusing more on the mass affluent segment in Peru with a new value proposition that is completely digital. Growth is still slow. We're growing because we have a value proposition that is still not complete with the credit card, we're seeing good transaction levels and good levels of active users, not a stickiness in terms of the customers that we do acquire stay with EO for the past 12 months. So if you're

going to spend on EO, are you already in the general advertising level or still in the friends and family phase?

No, we're at the general advertising level. We still use a lot of digital marketing more than TV or mass market advertising but we are open to the public using at this point only DCP's risk policies. So we're using the DCP's risk modeling to target customers that are basically not currently DCP customers.

Can we have an idea of the order of magnitude of customers that you have, either activated or registered? Again, not exact numbers but how many are we talking about, 100,000, 10,000? No,

we're at the 10,000 number.

This

is our early venture.

Thank you so much.

Thank you.

The next question is from Andres Soto with Santander. Please go ahead.

Good morning to all and thank you for the presentation. My question is regarding dividends. You guys declared a dividend that implies a significant increase versus last year 40% and yet when I look at the capitalization levels of your main subsidiaries, that is still above what you say is the minimum that you expect. Specifically, when I look at DCP, DCP is currently at 12% and you say that the target post-dividend is 11. At MiBanco is at 16 versus 15 that you said as a target. So my question is what prevented you from being more aggressive in terms of dividend distribution and if you see any space for additional distribution, special dividends throughout the year?

Thank you for the question. First, I am going to address probably the capital levels of the operating units and after that the dividend at credit card level. Actually, we set up a minimum of 11% as you rightly mentioned at DCP and we usually put some kind of small cushion. Particularly at the end of the quarter in DCP, we have a decrease in corporate loans that were beyond what we were expecting. For that reason, we have a core equity tier one above that was going to be, I would say, an unexpected level, some decimal points there. And at credit card level, we expect to have a growing first dividend through the year. So we feel that this was a significant increase over the last year and we, based on the capital needs of the remaining part of the year, can evaluate for the dividends.

Perfect. Thank you.

The next question is from Alonso Aramburu with BTG Patchwell. Please go ahead.

Yes. Hi. Good morning and thank you for the call. I wanted to ask also about YAPE. We read multi-stornal loans which you guys have been growing lately. Can you comment on the asset quality behavior of those loans? What are the size of those loans? Are these going to million clients and non-BCP clients? And have you been able to develop a risk model based on YAPE data or are you still using the DCP risk models? Thank you.

Good morning and also, I would say, going to the specifics. In YAPE, we started with one installment loan, very, very short duration, less than 30 days. NPLs have been very, very low, surprisingly low, I would say, and that has been closely targeted to or using DCP models. We've learned about with those loans and now we've launched multi-installment loans which are longer internal and larger in tickets and we're currently also using data and pilots so as to enhance the models at DCP that haven't worked solely with DCP data and also leveraging on YAPE's data. Today, as I mentioned in my initial words, we're at very early stages in the lending business in YAPE but so far the performance of that business is very promising. Okay, thank you.

The next question is a follow-up from Yuri Fernandez with JP Morgan. Please go ahead.

Thank you guys for chasing my question again. Just a follow-up on capital, two topics. Do you have excess capital at the holding? I remember sometimes in the past, credit card holding had excess capital so just checking if there is any capital there. And two effects, I know this sole has been mostly stable but can you remind us whatever the sole goes, do you have any correction to one effect? Does the effect impact your capital base because you have bonds in dollars and this can affect your RWA? Can you just refresh me here on effects of liquidity for you? Thank you.

I'll take your first question and then ask yourself for a second one. We've explained it before that the policy we have is we retain whatever is needed from profits I mean, whatever is needed at the subsidiary level to fund growth within the common one that we've decided to keep. From that which basically are Nibanko and BCP and obviously at Pacifico regarding the solvency ratios we need to maintain. Beyond that, the policies that we pay all of the subsidiaries pay dividends in full of what is the rest of what is needed to credit card. And as Cesar mentioned, the policy we're following is that the usual dividend to rise it on a yearly basis and that's the reason we've raised the dividend, this current dividend and depending on the performance of the economy, depending on the environmental, inorganic growth activity that or opportunities that we may find, we do pay an extraordinary dividend in the last quarter or the second semester of the year. That's how we manage it. So going to the specific question, yes, in a short answer is yes, we have extra capital but the logic is what I just explained.

Yes and regarding the second question, I would like to remind you that our functional currency is solid and our books are I would say by policy and structurally balanced and neutral. So we try to maintain in all the subsidiaries within a very short range outside of a specific trading operations a balanced book. So we are going to have some impact for the effects, impacts in the P&L but structurally we are neutral in operating currency at subsidiary level. Given say that we have operations outside of Peru that are conducting the business and other currencies, dollars of Colombian pesos or Chilean pesos in which case we have on top of the volatility of the effects in the P&L an impact of the relative exchange from this currency to Soles in the balance sheet reflected as non-realized losses or gains. At this point, these impacts are very moderate.

Thank you very much Cesar and Gianfranco. That's my final one. Thank you.

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

Thank you all for your questions. As Cesar mentioned, we are optimistic about credit corps ability to realize our revised guidance for 2024 and reiterate our 2024 ROE guidance. Furthermore, I'd like to reaffirm that we are confident in our ability to achieve the sustainable ROE by 2025 based on the following drivers. A resilient NIM as we have managed the sensitivity of our margins to market interest rates on the back of our asset liability management and our ongoing shift towards retail loans. A reduced cost of risk as we lead the current through in the great cycle behind and enhanced efficiency as YAPE and all disruptive initiatives mature. Moreover, the political environment now is clearly more stable than the one a year ago and we expect that the current administration will remain in office until 2026. This is without doubt positive to business confidence. Having said that, the recent S&P downgrade should serve as a wake-up call for us. Merely having stable governments is insufficient to catalyze the robust growth needed to alleviate poverty in Peru. We need our executives and legislative authorities to take bold steps forward in fostering growth and safeguarding democracy. This entails implementing structural reforms in education and health and eliminating the bureaucratic barriers that hinder the execution of our mining and infrastructure projects. As leaders, it is our responsibility to advocate for policies that unlock our country's untapped potential and drive progress. And on that note, we recently published our 2023 annual and sustainability report, prompting me to take this opportunity to reaffirm our commitment to our purpose, to contribute to improving lives by driving the changes that our countries need. Lastly, I would really remiss if I do not mention that this marks Thessar Rheal's final presentation in our quarterly earning calls. I wish to express my gratitude for his invaluable contribution during his tenure as CFO. Starting July 1st, he will transition to the role of Chief Risk Officer at Gray Corp and BCP, leading our risk management strategy into a new chapter as we continue to tap new segments and markets. Additionally, I look forward to working closely with Alejandro Perez-Reyes in his new position as CFO of Gray Corp and BCP. Our experienced leadership team has a long track of record of successfully managing through both challenging economics and regulatory environments. We are focused on driving sustainable, profitable growth and building long-term value for our shareholders through prudent capital and risk management. Thank you all for participating in today's call.

Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect.