Credicorp Ltd.

Good morning, everyone. I would like to welcome you to the Credit Core Limited third quarter 2024 conference call. A slide presentation will accompany today's webcast, which is available in the investor 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 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 speaker phone, please make sure you mute your function and it's turned off and to allow the signal to reach our equipment. Now it is my pleasure to turn the conference call over to Credit Corp's IRO Milagros Y Glenas. You may now begin.

Thank you and good morning, everyone. Speaking on today's call will be Gianfranco Serrari, our Chief Executive Officer, and Alejandro Perez Reyes, our Chief Financial Officer. Participating in the Q&A session will also be Francesca Raffo, Chief Innovation Officer, Cesar Rios, Chief Risk Officer, Carlos Sotelo, MiBanco Chief Financial Officer. Before we proceed, I would like to make the following safe harbor statement. Today's fall will contain forward-looking statements, which are based on management's current expectations and beliefs, and are subject to a number of risks and uncertainties. And I refer you to the forward-looking statements section of our earnings release and recent findings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or statistical standards. Gianfranco Ferrari will begin the call with remarks on the improved macro environment, a brief overview of our quarter-year results and recent developments, followed by Alejandro Perez-Reyes, who will provide a more detailed analysis of climate economic indicators, our financial performance, and revised outputs for 2024. Gianfranco, please go ahead.

Thank you, Milagros. Good morning, everyone. Thank you for joining us today. The positive momentum we saw in the first half continued into the third quarter. allowing us to deliver a record high bottom line of $1,523 million this quarter. Additionally, we distributed our special dividend, achieving a total dividend payout of 75.3% to date. This performance was driven not only by an improving macroeconomic climate, liquidity inflows captured from pension withdrawals, and a relatively more stable political environment. But more importantly, by the strategic initiative we've implemented across the organization. We've reached a pivotal inflection point where the benefits of these initiatives are consistently materializing across our businesses, reinforcing our competitive strengths and further decoupling our performance from external macroeconomic factors. Despite geopolitical tensions in the Middle East, we are maintaining our GDP growth projections of 3% for 2024 and 2.8% for 2025, on continuing signs of recovery in Peru. Though we do recognize that ongoing developments in that region and the results of the U.S. elections could cause some volatility. In October, inflation rose to 2% from 1.8% in the previous month, which was the lowest level in nearly four years. As such, it remains within the central bank's target range of 1 to 3%. Our strategy to diversify revenue streams with the goal of generating 10% of the risk-adjusted revenues from new businesses by 2026 is to strengthen the resilience in the current environment. This approach is particularly important given the slow and unexpected recovery in business confidence. which impacts private sector investment and demand for wholesale loans. At the same time, we remain committed to truly managing retail loan growth. Importantly, we are seeing a reduction of NPLs, supported by additional liquidity from pension withdrawals. As discussed during our recent strategic update, we remain truly focused on deepening market penetration with new value propositions, exploring untapped business segments and accelerating the adoption of transformative technologies. While we remain committed to leading the way in shaping the financial products and customer experience of the future, we will do so with a disciplined approach, ensuring alignment with our strategic goals and improving financial management. Now, moving onto the regulatory front, after years of political debate, Peru enacted pension system reform in September, marking a significant step towards enhancing financial security for retirees. We're optimistic about its potential to strengthen the system's ability to channel national savings into infrastructure and productive investments, driving long-term economic growth. Before turning to our third quarter results, let me discuss a few recent corporate developments. Starting with Tempo, our digital world in Chile. After quickly establishing a strong presence in a competitive market, we received provisional approval from the Chilean Financial Market Commission on October 25th to create a new banking entity named Tempo Bank Chile. This is a significant milestone from credit cards expansion into the Chilean financial market as Tempo advances towards securing full operational authorization which we expect to happen in 2025, becoming the first digital bank to operate in Chile. Next steps for TEMPO to become a new bank involve obtaining existence and operational authorization from the CMS. Furthermore, reaffirming our commitment to innovation and our goal of revolutionizing the financial ecosystem in the region, Francesco Raffo, our Chief Innovation Officer, has resigned from her position as Deputy General Manager at DCP to focus exclusively on leading innovation at Credit Corp and continue the transformation of the financial markets in Peru and Latin America. Lastly, I'm pleased to share that on October 31st, we announced the acquisition of the remaining 50% stake in our joint venture with Compresas Van Medica that includes three businesses, the PEC Medical Insurance, corporate health insurance for employees, and medical services. The acquisition strengthens Credit Corp's ability to fulfill its aspiration of creating a more sustainable and inclusive economy by improving insurance and healthcare access while advancing financial inclusion in Peru. Turning now to the third quarter results. We delivered a strong ROE of 18.5%, primarily driven by universal banking and insurance. and supported by diversified revenue streams and high-level transactional activities in our recovering economy. Risk-adjusted MIM improved, reflecting a disciplined interest rate management strategy, along with our leading low-cost funding position and low operations. Notably, our broad solvency allowed us to declare a special dividend of 11 soles per share while also contemplating our plans for continued sustainable growth. We're witnessing significant benefits from our investments in innovation and enhancing digital capabilities. We strengthen our competitive modes, elevate our relationship with current clients, and promote financial inclusion. Looking ahead, we maintain our GDP growth expectation of 3% for this year and expect a similar outlook for 2025. NIVANCO's performance is improving, driven by both the overall economic recovery and the specific learnings and measures taken regarding origination, monitoring, collections, and rescheduling processes. We're continually evaluating opportunities for further structural risk management and operational improvements to achieve our medium target of a 20% ROE. As we make progress, we will keep you updated. We remain committed to the long-term growth potential of the market served by Nibanco, given its slow market penetration. Additionally, we have seen increasing synergies between Nibanco and IAPE, derived from the potential for enhanced insights from the massive amounts of data collected by both companies. I will now turn the call over to Alejandro, who will go into further details on the macro environment, each of our operating businesses, and our consolidated results. Alejandro?

Thank you, Gianfranco, and good morning, everyone. As Gianfranco mentioned, we delivered strong overall operating and financial results, including a record high net income. This performance was achieved despite an environment of negative loan growth and an improving but still elevated cost of risk, which attests to the resilience of our businesses and the power of Cracov's diversified revenue base. As I discuss the highlights of the quarter, I will focus on the quarter-over-quarter results to emphasize recent shifts in trends. Results have been positively impacted by an uptick in transactional activity, favorable results from recent risk management measures, and increased liquidity levels across the financial system, partly attributable to pension fund withdrawals. While the additional liquidity increased loan amortizations, it also positively impacted asset quality, funding costs, and transactional levels. Loans contracted 1.2% measured in average daily balances. and 3% in quarter-end balances. This contraction was driven primarily by corporate loans at BCP and by Nibanco, amid more restrictive provision guidelines. On the other hand, asset quality improved. The NPL ratio dropped to basis points to 5.9%, driven primarily by BCP and Nibanco. At BCP, the NPL contraction was led by the corporate, consumer, and credit card segments. Provisions fell 20.6% driven primarily by improved payment performance in retail banking at BCP and Nibala. As a result, the cost of risk fell to 2.4%. We delivered stronger margins with net interest income increasing by 3.5%. This growth was driven primarily by a decrease in interest expenses, as low-cost deposits continue to enter in in the mix and now represent 56.2% of the funding base. As a result, mean increased 10 basis points to stand at 6.4%. Non-interest income contracted this quarter as regulatory changes impacted the foreign transfer service businesses at BCP Bolivia. Fee income contracted 3.5%. However, excluding BCP Bolivia, fee income rose 4.4%, benefiting from strong transactional activity at BCP through credit cards, debit cards, and YAPI. Gains on FX transactions contracted 20.6%. However, excluding BCP Bolivia, they grew by 1.9%, boosted by increased book volumes. Lastly, insurance underwriting results fell 7.5%, reflecting less favorable reinsurance results in the P&C business. All in all, we delivered an 18.5 ROE this quarter, supported by the aforementioned revenue dynamics, active risk management, and discipline cost control. while maintaining some capital levels. On cumulative terms, ROE stood at 17.7%. Next slide, please. In the third quarter, Peru's economy continued to recover. Economic activity grew 4% year-over-year on average in July and August. Notably, non-primary GDP accelerated by 4.2% in the same period, its highest growth rate in more than two years. In September, GDP growth is expected to have slowed down slightly, bringing the quarterly growth rate to approximately 3.5%. Favorable commodity export prices, coupled with lower import prices, have driven terms of trade to historical highs. This trend is expected to provide a tailwind for growth in the coming quarters, particularly if it propels higher mining investments. According to the central bank, expectations for the economy and for investments have improved and have remained at the optimistic range for most of the year. The Changkai port, set to be inaugurated next week during the Asian Pacific Economic Cooperation meetings, is projected to boost GDP by 0.3% in 2025 during its first phase of operation, according to the Central Bank. The new port will reduce shipping times between Asia and Peru by 10 to 15 days. This improvement in efficiency has the potential to transform trade dynamics and routes between the West Coast of South America and Asia. Public investment has also driven economic growth, rising by 25% year-over-year in the first nine months. This constitutes the best print in 11 years, excluding the pandemic period. Recently, Moody's and Fitch reaffirmed Peru's credit rating, three and two notches above investment rate, respectively. Both agencies upgraded the outlook from negative to stable. Moody's emphasized that the adoption of political reforms has alleviated million-10 concerns about institutional stability. Meanwhile, Fitch noted that some policymaking has supported economic recovery this year and preserved broad macrofinancial stability. Considering the recent economic developments, we reaffirm our GDP growth forecast of 3% for this year and expect a similar growth rate for 2025. Next slide, please. The Federal Reserve recently began easing its policy stance with a 50 basis point cap in September, its first reduction since the pandemic, followed by a 25 basis point cap yesterday. While federal caps are expected, uncertainty remains regarding their pace, particularly as the economy's trajectory will depend on the new government policies. Consequently, volatility in dollar rates is likely to persist. In April, inflation in Peru has been constantly remaining has comfortably remained within the central bank's target range of between 1% and 3%, while core inflation followed suit more recently. The gradual rate cut approach adopted throughout the year is expected to continue in the coming months as the rate approaches its neutral level during the first half of next year. In Colombia, inflation slowed to 5.8% year-over-year in September. This rate continues to be above the upper limit of the target range, which is between 2% and 4%. the central bank continues to pursue a restricted policy. Finally, in Chile, the central bank has gradually reduced the pace of monetary easing, as the rate moves towards a neutral level and the bulk of caps have already occurred. Since July 2023, the policy rate has fallen 600 basis points. This has led the country's currency to depreciate nearly 10% year-to-date, offsetting the positive impact of higher copper prices. Next slide, please. This quarter, BCP's profitability has been boosted by a reduction in the cost of funding, higher financial levels, and improvements in client payment performance, as risk management measures to detect and equity roles in individuals on the lack of inflows from pensions and withdrawals. Key quarter over quarter dynamics included. Total loans measured in average daily balances fell 0.8% driven by a reduction in the corporate loan segment. After a large client from the construction sector repaid a long-term operation. and by adopting individuals where excess liquidity was... MPL fell 4.6%, mainly driven by wholesale banking, which raised their loan repayments by a corporate client from the commercial real estate sector, and consumer and credit cards, fueled by improvements in origination, monitoring, collections, and rescheduling processes, and by clients who leveraged excess liquidity to make repayments. In terms of drivers and results, mean real estate basis points to stand at 6.2%, aided by a low-cost funding structure that reflects a strategy of strengthening primary banking relationships with our clients. Other core income grew 6.9%, driven primarily by an uptick in fee income from transactions via credit and debit cards, and secondarily by higher fees from the payments line in Japan. Cost of risk fell 51 basis points to stand at 2.1%. the contraction in provisions was driven primarily by an improvement in payment performance in retail banking. In individuals, particularly consumer and credit cards, provisions fell after the weight of newer and healthier vintages within the loan portfolio rose, rescheduling efforts were ramped up in the last quarter, and debt repayment rose in a context marked by higher liquidity across the system. In SMEs, the contraction in provisions reflected mainly the fact that newer and healthier vintages increase their weight within total loans and less refinancing what grant. Regarding year-over-year dynamics, I would like to highlight income growth. NII rose 12.8%, fueled mainly by an uptick in interest income and by a drop in the funding cost. Other core income rose 18.2%, posted by an increase in transactional level. BTP's transactional business has begun increasing in the relevant as illustrated by the upward trend in the ratio of other core income to assets, where IAPE has contributed greatly to fee generation. On a year-to-date basis, BCP continues to improve efficiency through positive operating leverage. Operating expenses rose 10.4%, driven mainly by disruption, personal expenses, and increased spending on licenses, system infrastructure usage, and cloud capacity in a context of growth in transactions via digital channels. Meanwhile, operating income grew 12% and BCP's efficiency ratio stood at 37.4%. In this context, BCP's third quarter contribution to ROE rose to 24.5%, standing at 22.9% year-to-date. Next slide, please. The number of active llaperos continued to grow this quarter to reach the 13 million mark. This put us well on our way towards reaching our aspiration of 16.5 million active users by 2026. These users are making, on average, 44 transactions per month. In this context, the upper revenues continue to accelerate while expenses remain under control. At the end of last quarter, revenue per active users reached 4.9 soles, further decoupling from expenditures per active user. With this achievement, we are on track to realizing our aspiration of ensuring that disruptive initiatives contribute significantly to credit cards revenues after provisions. The app's payment business is the app's forerunner for revenue growth, with the potential of growing four times going forward, as mentioned in our strategy. Income generation this quarter was re-fueled by young empresas, which offers value-added services to businesses. Additionally, bill payment transactions have risen 3.3 times since the third quarter of 2023. Within the financial business line, revenues are obtained mainly from floating, while loan disbursements continue to grow exponentially. By the end of September, we had disbursed loans to 1.1 million clients and are on track to achieving our 2026 aspiration of 5 million yaperos with a loan disbursed, while maintaining credit risk under control. It is important to note that 42% of the aforementioned borrowers received their first loans in the financial system through YAPF. Finally, a market-based business has been a lever in bolstering customer engagement. This is reflected in the gross merchant volume, which has grown 2.7 times year-over-year, mainly to the average cost. Next slide, please. At Nibanco, the FBA ratio is improving at a faster pace than most of its peers, thanks to the risk management measures taken. On a quarter-over-quarter basis, Nibanco's total loans, measured in average daily balances, fell 4.8%, impacted by stricter origination policies. This drop reflects a contraction mainly in higher-ticket loans, which was partially offset by growth in new disbursements in small-ticket higher-yield loans. Despite the drop in loans, NIN rose 25 basis points to 13.9%, primarily due to the drop in the cost of funding after the funding rate decline. In terms of portfolio quality, NPO fell 8%, driven by a reduction in overdue loans. This evolution was fueled by tighter adjustments in origination guidelines, improvement in debt collection management, and by debt relief facilities in June and July of this year. The improvement in payment performance led to a cost of risk to fall 133 basis points to standard 6.2%. From a year-over-year perspective, I would like to highlight the resilience of the Bank of Maine. Erratic loan pricing management coupled with an increase in the cost of funding helped sustain Maine despite a loan contraction. Operate expenses on a year-to-date basis remain under control and efficiency stood at 52.8%. In this context, Vivantos' third quarter contribution to ROE rose to 9.4% and stood at 8.9% year-to-date. We expect risk management measures to continue to yield positive results as healthy loan growth resumes. These dynamics should drive a control cost of risk and help us recover profitability levels. Ivanko Colombia's profitability has moved into positive terrain. A recent strategy to slow down portfolio growth, control risk, and strengthen efficiency has bear fruits. Let me try this. Profitability at Grupo Pacifico continues to be strong, with ROE standing at 24.3%. This strength was attributable to solid investment performance and a favorable contribution from the corporate health insurance and medical services business. Net income, however, dropped 2% quarter-over-quarter on the lack of a deterioration in insurance and the writing results due to higher claims, particularly its credit line. It is worth highlighting that this quarter we started a 15-year partnership with Falabella for the distribution of insurance products. This partnership represents a great opportunity to facilitate access to insurance for more familiars. From a year-over-year perspective, group of statistics of net income dropped 23%. This decline was mainly driven by lower insurance and the rising results, driven by medical assistance and credit-like products, and a base effect associated with last year's one-off net gain from exchange difference. This portion of profitability is representative of the sustainable ROE level we expect to deliver at Pacific. Next slide, please. Now I want to address the transaction we announced last week. In line with our strategy to expand our presence in Peru's insurance and software markets, Credit Corp reached an agreement to acquire Empresas Van Medica's 50% interest in our joint venture with Pacifico Seguros. The acquisition includes Van Medica's 50% stake in the private health insurance, corporate health insurance, and medical services business, and is subject to regulatory approvals and other standard conditions. The transaction value stands at 1,131 million soles, and is a credit to Credit Corp's earnings from day one. I would like to underscore three key aspects of this strategic move. First, significant growth potential remains in both the insurance and healthcare sectors in Peru. The healthcare sector is underserved, with only 1.6 hospital beds per 1,000 inhabitants. Similarly, private insurance penetration stands in the low single digits, pointing out to significant growth opportunities. Second, by increasing our participation in both sectors, we aim to deliver a comprehensive value proposition to clients while maintaining a strategic hedge across our business portfolio. Third, Credit Corp holds deep expertise and a proven track record in these sectors, with over 25 years in health insurance and 13 years offering medical services. In summary, this acquisition is a natural progression for Credit Corp, reinforcing our commitment to high-quality products and services in the insurance and healthcare sectors. It is strategically positioned to capture growth opportunities and continue delivering exceptional value for clients and shareholders. Profitability in investment management and advisory business remains sound, with ROE standing at 15.9%. This performance was attributable to favorable business dynamics at our less volatile units, namely work management, asset management, and our sales activities within capital markets. These units are benefiting from increased transactional activity and growth in AUM. Net income, however, registered a 16% decrease quarter over quarter. This growth was primarily attributable to a base estate. It was associated with our discontinued corporate finance business unit and to less favorable treasury results. On a year-over-year basis, net income rose 77%, best primarily by our capital market business.

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The speakers are back, so we will continue right where we left off. Apologies for any inconvenience.

Sorry for the technical difficulties. I'm going to restart from the part of the consolidated evolution of credit cards, that's slide 13. So beginning with the quarter-reported dynamics for the balance sheet for credit cards consolidated evolution. On the asset side, cash and equivalents grew in a context of excess liquidity, which boosted the level of interest-earning assets despite a decline in loans. Loan balances decreased at DCP, mainly due to corporate individuals and at MiBanco, as previously explained. This shift in the asset mix led the yield on interest-earning assets to drop five basis points. On the liability side, an increase in low-cost deposits, which was fueled by withdrawals from pension funds, led our cost of funds to drop 18 basis points. On a year-over-year basis, on the asset side, cash and equivalents increased and the loan portfolio contracted, following similar dynamics as seen in the quarterly analysis. The investment portfolio, in turn, increased, and its duration was extended. In this scenario, the yield on interest-turning assets fell nine bases more. On the funding side, the aforementioned increase in low-cost deposits resulted in a favorable funding mix, despite an increase in due-to-banks and recent bond issuances by BCP. Against this backdrop, the cost of funds fell 47 basis points, largely outpacing the decline in the yield on interest-earning assets. Next slide, please. Moving on to loan portfolio quality, NPL fell 4.8% quarter-over-quarter, driven by both BCP and Ivanko, via the dynamics mentioned earlier. It is important to note that this quarter, the evolution of the NPL volume reached a turning point, particularly in the segment most impacted by the recent credit cycle. individuals, and the structure of the SMEs' portfolios at BCP, as well as by MiBanco's portfolio. The improvement in the payment performance, coupled with successful risk management measures at both BCP and MiBanco, led provisions to drop 20.6% quarter over quarter, while the cost of risk decreased 64 basis points to standard 2.4%. In this context, the NPL coverage ratio rose 364 basis points quarter over quarter to standard 98.7%. Next slide, please. Moving on to analyzing our income and expenses. To analyze the evolution of core income, the most efficient approach is to exclude BCP Bolivia as regulatory changes impacted its foreign transfer service business. After excluding Bolivia, core income rose 3.7% quarter over quarter, driven mainly by NII through a decrease in the cost of funding and an uptick in fee income via credit cards, debit cards, and Yate transactions. In terms of margins, NIM increased 10 basis points to stand at 6.43%, while risk-adjusted NIM rose 53 basis points to stand at 4.93%. I would like to emphasize that the year-over-year increase in NIM of 32 basis points reflect both the rising strategic advantage of our funding cost and the fruits of a disciplined interest rate risk management strategy. Analyzing expenses and efficiency on an accumulated basis, operating expenses rose 8.2%, driven primarily by core businesses at BCP and disruptive initiatives at the credit card level. Expenses for disruptive initiatives at the credit card level rose 28.1%. The most significant expenditures were in YAPE, KULKI, and TEMPO, which combined accounted for 71% of disruptive expenses in the first nine months of the year. Finally, an uptick in operating income and accelerating operating expenses led the efficiency ratio to drop 51 basis points, to stand at 44.6% in the first nine months of 2021. Next slide, please. This quarter, ROE stood at 18.5%, driven by strong results in our universal banking and insurance business. ROE for the first nine months was 17.7%. Net equity was slightly impacted this quarter by the payment of an extraordinary dividend of 11 soles per share. Accordingly, our dividend payout ratio stands at 75.3% for the year. It is important to note that BCP and MiBanco have not yet declared an additional deal. These results are a testament to our resilience and ability to adapt to challenging circumstances. And now I will move on to our updated guidance. Next slide, please. As previously stated, our expectation for GDP growth remains at 3%. Regarding loan growth, although economic activity continues to enjoy positive momentum, the appetite for long-term financing in wholesale banking remains low. our approach to origination in our retail banking and market finance segments has been cautious. These factors, coupled with the impact of pension fund withdrawals, have led us to revise our guidance for total loan growth, measured in average daily balances, to around 0%. Our NIM is expected to situate in the upper end of our guidance range, which is between 6% and 6.4%. We expect the cost of risk, in turn, to situate in the upper end of our guidance, which is between 2% and 2.5%. We achieved solid efficiency levels as we continue to invest in our disruptive initiatives. We are controlling growth in expenses in our core businesses and expect to close the year with an efficiency ratio near the lower end of our guidance, which is between 46% and 48%. Given the aforementioned dynamics and based on the strong evolution of our other income and insurance and the writing results, we reaffirm our ROE guidance for 2024 at around 17%. With these comments, I would like to start the Q&A session.

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 are using a speaker phone, please make sure you mute. 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 comes from Ernesto Gabilondo with Bank of America. Please go ahead.

Thank you. Hi, good morning, Gianfranco, Alejandro, Francesca, Teresa, good morning to all your team. Congrats on the results and thanks for the opportunity to ask questions. My first question will be on asset quality and cost to risk. So you have been mentioning the strategy to get higher exposure into the retail segment, but at the same time, probably that goal could be in a much better position next year. So wondering how you see the cost to risk evolving in 2025?

Yes, Alejandro? Yes, sure. As you mentioned, we have seen an improvement this quarter. We think the trend will continue. There might be perhaps some change in the in the gradient of the trend, once the pension money starts being, goes out of the system, but still we are expecting cost of risk to continue to come down. And our expectation for the next year and the following years is to continue moving lower. Again, as you know, we are changing mix in, we're expecting a changing mix in our portfolio. So we are not expecting to go back to cost of risk like pre-pandemic, but more based on a mix than individual segments. So our expectations for 2025 are a lower cost of risk than what we're having this year.

Cost of risk for this year was between two to 2.5, probably will be at the high end 2024. maybe between the mid to low end of that guidance for that range?

We haven't given guidance yet for next year. We will beginning of next year. I would just mention that we're expecting a lower number for the coming year. We will give more details soon. The other thing to keep in mind to have a sense of the recovery is that We're expecting a lower number despite the fact that we're not returning any provisions like we did this year. So this year, we're going to be in the upper side of the two and a half, but we returned the provision from El Nino. Next year, we expect a lower number without necessarily having any kind of provisions returned, specific provisions.

Perfect. Perfect. Thank you. And then my second question will be on subsidiaries. So can you share with us which are the subsidiaries with ROEs below Credit Corp's ROE of around 17%? And what do you think will be the strategy to get them closer to the Credit Corp's ROE level? And considering that we will be developing these two mail banks, one in Peru and one in Chile, where do you see both banks reaching the break-even point?

I'm sorry, the last part, reaching what? I didn't get that.

The break-even, the break-even point.

Ah, okay. If you want, I can start with the ROE part. So basically, currently, when you look at the subsidiaries, most of them are having a good performance and trending towards the 18%. with Pacifico, BCP above the number, credit or capital improving, and hopefully it will get very close in a couple of years. Mi Banco has been really hit by the credit cycle, but our expectations are in the coming years it will go back to the number more closer to the 20% mark, which is what we aim for in that business. I don't know if any others.

Yes, good morning, Ernesto. This is Gianfranco. Maybe just to compliment Alejandro, from an overall perspective, I would say the underperforming line of business is microfinance. As Alejandro mentioned, we expect next year to have a much better year in terms of ROE. And as I mentioned in my initial words, we're targeted to have a sustainable ROE of 20% for the microfinance business. Maybe the other one, it's not that relevant, but the other one that is underperforming is BCP Bolivia. As I always say, it's the right franchise in the wrong country. We're doing what we can. The ROE there might be around 12%, 13%. And regarding the second part of your question, well, obviously, out of the large ventures or initial innovative business, YAPE is beyond breakeven. Obviously, we have, I've mentioned in previous calls, most of the sources of income at YAPE have a J curve, so we expect next year to be significant in terms of And regarding the other large one, which is Tempo, we expect at least two to three years to reach break-even. Having said that, Tempo is right on track, slightly better, actually, than the original business plan.

No, super happy. Thank you very much, Franco and Alejandro.

Thank you.

The next question comes from Renato Maloney with Autonomous Research. Please go ahead.

Hi, good morning. Thanks for taking my question here. So you've mentioned how this excess liquidity in the system has helped the asset quality and your cost of funding. So I wanted to understand if this is a short-lived impact or we're still going to see more of that in the upcoming quarters. And then how do you reconcile this asset quality improvement but also excess liquidity with your growth perspectives for next year. Thank you.

Sure. The specific event of the pension fund is a short-lived event. It has already, all the money has been deployed to clients. Some of it is still retained in accounts, so they could use more of that money if they wanted. The actual effect, direct effect, has been considerable but not the only reason why we've seen this decrease in cost of risk. So what we're expecting is that this will fade out as it has done before. Remember this is like a seventh withdrawal from pension plans, so we've seen this dynamic before. But at the same time, when we think about what's going on, we're expecting and we're actually seeing growth in employment in the country, which is also very important. The last number for Lima for that quarter was a 5% increase in formal employment. We have leading indicators on payroll payments that are very strong right now. That should allow this trend that I was mentioning of cost of risk to continue to decrease.

And maybe just to compliment Alejandro, these central bank figures, the expectation for them is private investment to grow 2% this year and 4% next year. So there are some, as Alejandro mentioned, both micro and macro leading indicators that provide us a lot of confidence that next year should be a better year in terms of investment. the performance of the loan book in terms of growth, I mean.

Okay, great. So next year, like higher growth, lower cost of risk. Thank you.

Question comes from Tito Labarta with Goldman Sachs. Please go ahead.

Hi, good morning. Thank you for the call and taking my question. First question, just on the guidance, you maintain the ROE guidance at around 17% for this year. You are running above that in a very strong quarter in three Qs. So does that imply just normal seasonality in four Qs? So ROE should trend lower to get you down to that 17%? Or do you think there's upside to that 17% because you're running probably closer to 18%? Just to clarify, maybe some color on 4Q and if we should expect a relatively weaker quarter.

Sure. It is what you said. We always have some seasonality on the last quarter of the year. It happened exactly the same way last year. So that should mean that we're not going to have – we're going to annualize a quarter like this one. There's going to be more expenses. But we're thinking that we probably will end up on the upper sides of the around 17 mark.

Okay. That's helpful. And then my second question on your margin, you know, you're running it closer to the high end of guidance. But how do you think about the sensitivity to lower rates, I guess, particularly in the U.S. that's now, you know, cut rates again? the margin get impacted by lower rates both in Peru and in the U.S.?

Sure. I mentioned last quarter a calculation we have. We've refined it a little bit for this quarter that a parallel shift of 100 basis points will have an impact on the first year of around 15 basis points on our margin and then goes up to around 25% in the coming year because of the duration of the portfolio. The full effect is felt in a longer period. So that is, if we don't do anything, as you've seen, even though rates have been coming down for a little bit, we have been able to sustain a strong and actually a little bit growing mean and expect to continue doing that going forward. based on the local funding advantage, as we expect to keep growing on that side, and also pricing and the mix in the portfolio. So there is this sensitivity, for sure, and it is something that we're going to be facing in the coming months. But at the same time, with the local funding, the mix, and the pricing, we think we'll be able to sustain and actually perhaps improve a little bit our name and And more importantly, the risk adjustment.

Okay. Great. Thank you.

Our next question comes from Tiago Batista with UBS. Please go ahead.

Yes. Hi, guys. Thanks for the opportunity. I have a question on YAPI. Yaki reached the impressive number of 13 million of active users, monthly active users, which is about probably half of the adult Peruvians. So my question is, First, is informality a kind of bottleneck that could prevent further expansion of YAPI? Or no, or you can see the number of users expanding further, even with the high level of informality in Peru? And second, in the 16.5 million targets that we had for 10.6, if I'm not wrong, this is including any kind of expansion to Bolivia, Colombia, or this 16.5 is only in Peru?

Let me answer the second question first. The figure we provided regarding YAPE is only Peru. Even though, as you all know, we already are operating in Bolivia successfully, I would say. Regarding your first question, which is actually the more relevant question, let me go a step back. And you're right. There's a point where the number of YAPEROS even though we're still growing at around 300 to 400,000 yaperos per month, at some point in time, there's a limited number of Peruvians. But the strategy, since the very beginning at Yape, had like a, it was a three, or it is a three-stage strategy. First one was to get the largest number of yaperos. The second, which is to, To increase usage, as of today, Yaperos are using YAPE on average 44 times a month. And the third stage, which we are already, obviously the three stages progress together, is to generate income. So, yes, there might not be the same level of growth in terms of either number of users or usage, but now we're focusing in terms of how income is going to is gonna keep growing. And that goes back to my original comment regarding the J-Curve in the new features we're launching within Jamek.

Not very clear.

Thanks. And the next question comes from Brian Flores with Citibank. Please go ahead.

Hi, Tim. Thank you for the opportunity. On slide number 13, we see a very improved composition, right, on the funding cost. So now low-cost deposits are at 56% of the funding base. Just wanted to hear your thoughts. What is driving this big increase? What is your strategy going forward? And should we also think that these improvements in cost of risk should continue helping research? Thank you.

Sure. We believe that the increase that you're seeing is mainly due to the transactionality capabilities and the principality we've been developing with our clients. Our client-centric approach has made us, we've invested a lot in bringing them all the channels possible to interact with the bank as seamlessly as possible. And what we're seeing is more and more clients working with us and leaving their floating with us. And that is what explains that growth. And our expectation is that there is still some space to keep growing in that area. So what we think is that we'll be able to continue to capture some of that floating and continue to grow on that line. The second question was, As I mentioned a little bit earlier, we are seeing a much better trend in the economy, both by the things that we did actively and also by the situation and the better situation in hiring and growth in the economy. So our view is that cost of risk will continue to decrease regardless of the specific liquidity event that happened with pension funds in the last quarter.

Thank you.

Thanks. Next question comes from Yuri Fernandez with JP Morgan. Please go ahead.

Thank you, everybody. I would like to explore a little bit the sustainable ROE. In the past digital day, you mentioned a target of 18% and you are tracking above it, even though capital has been super strong for the bank. So, I don't know, like looking versus 2019, it seems to be a better, kind of a better quality ROE and you are just in the beginning of IAPE and many of those initiatives. So just checking, do you continue to see 18% ROE as your sustainable target or no? Could we see some upside here?

Well, at the time we do continue to see the 18% as a sustainable number. There are other forces, like for example, regulation in Peru moving closer to Basel III that will require us to have potentially more capital. So when we look at the numbers as of now, we do think that the 18% is a reasonable sustainable ROE that allows us to continue investing into the future and at the same time provide a good return to our investors.

Maybe you have to compliment, bearing in mind what we mentioned at the investor day, we haven't changed the appetite for investing up to 150 basis points of ROE going forward. That's not a setting stone. We will obviously have a very disciplined and keep our very disciplined approach, but if it's needed, we will keep investing for maintaining our success. And at the same time, we do believe that 18% is a very interesting ROE for our investors.

No, super clear. If I may, a second one here, just on loan growth, because you already mentioned margins. If I got right, margins should be resilient, even though rates are coming down. But when should we see better loan growth? And I know you don't have a guidance yet for 2025, but if you can comment anything on the industry, like better economy, what should we expect? Because this was a little bit shy quarter for growth, right? So, Just wanted to understand when should we see a better volume in Peru? Thank you.

Sure. Yes, we do expect a growth in loan growth, and it comes from a couple of factors. From one side, the improvement in cost of risk also allows us to be or to start to think about being a little bit more aggressive on the lending side because when you think about the reasons for the loan growth, on the wholesale side, It's more of a demand issue in the sense that wholesale haven't been making long-term investments as of yet. On the retail side, it's been much more on the offering side, on our side, and being more cautious and not necessarily federating. As the economy improves and the situation of our clients improve, we expect to be more active there. At the same time, Gianfranco mentioned private investment, I'm sorry, growing at around 4 plus percent next year. I mentioned investor confidence being at the highest, or actually having been positive for this long since 2019, early 2019. So we start seeing more and more indications that there's a reactivation in the broader economy, because GDP has been growing, but more from the primary sectors. Now we're seeing it in a more broader sense. So those things make us feel that we are going to have growth in the coming year. And we have some calculations we'll give the guidelines beginning of next year, but we do expect growth to pick up. Amazing.

Thank you very much.

And the next question comes from Carlos Gomez with HSBC. Please go ahead.

Hello, good morning. Thanks for taking my question. I want to start by congratulating you on the results and on achieving that detachment from the local economy that you intended to do in January and you seem to be succeeding at that. Two specific questions. First, on Pan America, what is the main driver for this transaction? We understand that the shareholder in Chile obviously is going through their own issues In the long run, I mean, you made a strategic decision sometime ago to have a partner in this business. Has that changed? Do you want to have this business by yourself or would you consider having a different partner in the future? And the second question, totally different on cyber security. We know that there has been a big leakage of data at the competitor in Peru. Had it affected you in any way? And do you think that is something that you have to monitor more? Thank you.

Good morning, Carlos. This is Gianfranco. So as of today, our decision is to run the business by ourselves. Bear in mind that we've run that business from both the health insurance and the health providing business for several years before doing the joint venture with Medica. So we feel quite comfortable to run it by ourselves. And also the whole management team is gonna stay running the current operation. So no plans to to do another joint venture with another operator. Obviously, the future is the future, but as of today, nothing on the table in that sense. I would ask Cesar to answer your second question.

Yes, we have been monitoring very closely the event. It's a sad event for the country, actually, and we have been reviewing the information that we have in relation to that event in relation to our practices, governance, and so far we feel comfortable that the governance structure and investment we have been doing, but we strive to continue to improve our capabilities in this regard due to the growing trend in this kind of attacks and events globally.

So we haven't been affected, Carlos. No, we have not been affected. To your specific question.

Very clear. Thank you so much.

And the next question, Consumpte Neijon, KM, with White Oak Capital. Please go ahead.

Hi. Thank you for the opportunity. Just wanted to confirm my understanding. I think you commented on this before. The improvement in asset quality, do you see any positive trends in your clients beyond the impact of pension fund withdrawals?

Yes, we do. As I mentioned, we're seeing a lot of improvement in the economy, in the hiring, purchasing power. of people in the country. So all of those dynamics should start to bring the cost of risk down. Also, we did a lot of measures from our side a few months ago that are starting to pay in origination, in collection monitoring. So basically we expect the trend to continue regardless of what's happening with with pension plans. What might happen is that the speed at which it has decreased in this quarter might change a little bit in the coming quarters, but we are seeing an improvement in the more fundamental part of the situation of our clients regardless of this specific event. And just as a comment, for example, in the case of MiBanco, most of their clients don't have a pension plan and they haven't withdrawn anything but yet the cost of risk has improved in a very important way. So those are the types of things that we also consider when we're thinking about the trend in cost of risk. Yes, probably only to complement Alejandra in the same lines, we have tried to understand the effects in different layers. And one fundamental issue is the macro in terms of GDP, but also inflation that has helped particularly the consumer segment, the reduction in inflation has been a powerful positive force. The second set of levers linked to our own management. We have been reducing the risk appetite, adjusting procedures, and improving our capacity in terms of collections and rescheduling. And this is going to continue, but this is a fundamental trend. And the effect of the pension funds has had two different effects. One very directly regarding consumers in arrears with people who have received the funds in the bank or in other banks that we have been linked very specifically the event. And has also impacting positive clients that has reduced a little bit their volumes because clients with condition has used the funds to reduce. So we have two main or fundamental trends that are going to continue. But even the third part has helped us to identify clients with high propensity, willingness to pay, and we are actively rescheduling them.

Thank you. Thank you very much. Really appreciate your answer. Just a follow up on this pension fund topic. I think during the pandemic, when I think three or four rounds of this happened, I believe you commented that because these pension funds are now selling long term assets to meet the withdrawals, it led to an impact of long term yields going down. Do you expect that to affect your interest margins in the fourth quarter or maybe early 2025?

I didn't get the question. Long-term what? Coming down?

Long-term yields.

Yields?

Long-term yields for your loans?

Yeah. Ah, okay. Due to the fact that pension plans are coming out of the market, you mean? Yeah, yeah, yeah. Yeah. Now, we don't see really such a big impact there. Yes, they are less active in the market while they are recomposing their portfolio, but they will come back after this reform that Franco mentioned earlier. Pension plans should continue to grow and should continue to be an important player in the market. So we are not expecting any fundamental changes in the yield dynamics in the market.

Got it. If I have time, just one last quick question. I think Pacifico has been, you know, helping ROEs strongly for two, three years now. I think really appreciate the strong performance. Like you mentioned, 20% as your target for, let's say, the microfinance business. Would it be possible for you to provide any color on what are your cross-cycle expectations for the insurance business?

So specifically for Pacifico, which as you just mentioned has been outperforming, as we mentioned it before, we expect to be in the 20s. So that's the sustainable ROE at Pacifico.

Got it. Thank you very much, and congratulations on the results.

Thank you.

Next question comes from Sergey Dubin with HL. Please go ahead.

Yeah, good morning, Gianfranco and Alejandro. Thanks for the presentation. I just want to clarify regarding NIM sensitivity. So you mentioned that it's 400 bps of parallel rates. Your NIM moves by 15 basis points. Is that – are you talking about for both, you know, dollar portfolio and Solace portfolio? Can you give the separate sensitivity for dollar versus Solace, please?

Sure. I am talking for both. Sensitivity is a little bit higher on the dollar side than on the solid side because of the duration of the portfolio. But, I mean, if I'm talking about 15 basis points in the first year, you can think about an 8, 9, to a 7, 6 sensibility in each part of the portfolio. That is kind of the calculation we have right now. So it is a little bit higher on the dollar side.

Okay. Okay. And then when you said that 15 basis points in year one and 25 basis in year two, meaning it's not additional 25 basis points, it's a cumulative 25 by year two, right? So if rates move by 100 bps year one and just stay there, by year two, if you do nothing, your NIMS should contract by 25 BIPs. Is that correct, broadly?

Yes. If it contracts 100 basis points, it's going to come down 15 on the first year and then all the way to 25 accumulated in the second year. That's right.

Okay. And then just final question. So, you know, just looking at the slide on page six, where you show the central bank policy rates, you know, it looks like Peru rates have started to come down earlier, obviously, than the U.S. So Peruvian rates, according to the chart, start coming down in the end of 23. So you already had almost a year of lower rates in Peru. And then in the U.S., they just started coming down just last quarter, or just September, I think. So what's your kind of – you know, expectation on the rate outlook in Peru specifically? And, you know, how much of this, you know, will, you know, how much of the repricing of the portfolio would you see, would you expect to see in 2025? Sure.

Yes, as you mentioned, the central bank started moving earlier. They were like, they started in 75. They are at 5%. as of now, so we've already seen an important reduction in rate. Having said that, our terminal rate, our neutral rate for the central bank, we are around 4 to 4.25. It's going to depend a little bit on the U.S., the new government, whether it creates inflation or not, and what's going to be the neutral rate for the Fed. which is, of course, something that the central bank in Peru is going to have in mind. So we're expecting still for Peru 75 to 100 basis points more coming down that we expect them all to happen during 2025. That is our current stance. Again, we'll have to see what's going on with the U.S. and the policies they make and whether it generates inflation or not. And, of course, that's going to have an impact, but, again, that calculation is assuming we don't do anything And as you probably can see by looking, I don't know if you have in mind, but our NIM last year, at the end of last year, was 6%. We are expecting to be at a higher NIM this year despite the reduction from the central bank. And we expect this to continue into the coming years. We think that this change in mix plus the pricing, the retail is less sensitive to the price. So this change in mix by the pricing plus the cost of funds should allow us to keep growing NIM despite the fact that we don't have to work against those forces.

Okay, that's very clear. And just a very quick follow-up. So this, what someone asked before regarding low-cost deposits, now 56% of total, and you said it's because you're improving transactionality. So basically, as people, if there's more kind of an easy way to move money around and transact, right? People will continue to keep these low-cost deposits in there. That helps you from a cost of funding side. Do you have, you know, a target? So, you know, it went up quite a bit, right? In a year, it went up by almost 600, 550 basis points. Do you have a target in mind where that could get to, you know, in the medium term?

We have expectations and what we're seeing. We haven't given that guidance. We haven't given that information. We do see it growing in the coming quarters.

Maybe just to complement and answer your last question, this is a very long-term strategy. It's not like we manage it quarter by quarter. I would argue that the results we're having today is that results of the investments we've been doing for years now in terms of value prop for our different segments, like mobile banking, our webpage, the whole transactional features we've provided, YAPE and so on. So there's not a target. It's very difficult to give a number. Having said that, we will stubbornly keep investing in that sense because very much the usage of cash in Peru is still very high. So we do see a huge opportunity there.

Okay, understood. Thanks very much.

Thank you. And the next question comes from Andreas Soto with Santander. Please go ahead.

Hi, good morning to all. Thank you for the presentation. My question is regarding capital deployment. When I look at your presentation, capital ratios just before the extraordinary dividend and before the Medicare transaction. DCP is running about 15% for equity tier one. Ivanko is at 18%. Do you have the numbers of how they would like after those two events, the extraordinary dividends? and they want to make a transaction, which based on your numbers, it would represent $300 million. Is that coming out of the holding, or you will need to distribute dividends at the subsidiary level in order to pay for that?

Yes, Andres Gianfranco here. Yes, the $300 million have not been paid. By the way, just to be very specific, the transaction has been set in . be paying that when the authorities, both the superintendentsia and the COPI approves the transaction. So that cash hasn't been paid and it's gonna be paid by Credit Corp or the direct subsidiaries of Credit Corp, not any operational subsidiary. Specifically on the capital at both MiBanco and BCP, Even though the special dividend was paid by Credit Corp, as of September, dividends weren't paid from BCP and Nibanco. So that figure will be lower, obviously, by year end, or impacted negatively by year end. And as we always mention going forward, we will keep our minimum common equity to one of those two subsidiaries. and everything else is either paid as a dividend by CrayCorp or invested in a transaction, which, by the way, we have nothing on the table today.

Understood, thank you, Gianfranco. So based on that, by year end, what will be the, including, you know, the dividends from the subsidiaries and the payment of the bandmaker transaction, what will be the cash position at the holding company level?

The cash position at the, no, at K-Corp level or at company level? So at K-Corp level, we have like a, what we call a buffer, which is around $200 million. That's what we normally see. Which obviously higher now, because we retain the equivalent to $300 million for the American transaction.

That's an important point. When we decided on the special dividend, we already considered the fact that we were going to probably, if we got to an agreement with America, we were going to have to pay an amount. So, that it's already accounted for in the flow.

Understood. And looking at the, you've longer, I understand you haven't provided specific guidance, but, you know, you had Peru, you are giving actually guidance for Peru GDP growth next year at 3%, similar to this year. This year, the multiplier for low growth was exactly zero. Does it make sense to expect the multiplier to be at 1.5 times for next year, considering also your increased appetite for the consumer segment?

Let me put it this way. We don't expect the low growth to grow at zero next year. Two main reasons, as Alejandro says, have been quite clear before. Business confidence is improving. As a matter of fact, private investments should grow next year. So on the wholesale, and maybe oversimplifying here, but on the wholesale business, we expect growth because the level of confidence and appetite for investment, and specifically in mining, there are some brownfield projects that have already started. So that's one lever. And the other lever is that, what Cesar mentioned, Since the cost of risk in the retail business, both at BCP and Nibanco, is decreasing, our risk appetite is going to increase. Having said all of that, I wouldn't, as of today, give you a multiplier. Obviously, the multiplier is not going to be zero, but I wouldn't say it's going to be 1.5. Maybe next year, in February, when we provide guidance, we'll be much more specific.

Understood. Thank you, . Congratulations on the results. Thank you.

Again, if you have a question, please press star, then 1. Our next question comes from Alonso Aramburu with BTG. Please go ahead.

Yes, hi. Good morning, and thank you for the call. You've answered most of the questions already, but just a quick follow-up on the loan growth and asset quality. points that you made. I mean, you mentioned that you are at a turning point in the cycle, but you also mentioned a few times in the report that you still have a strict origination policy. So I'm just wondering, specifically at Nibanco, whether you're ready to relax some of those policies in the next couple of months before the end of the year so we can see some long growth there. Thank you.

Sure. As we're seeing this improvement in cost of risk We are not necessarily relaxing the measurements, but we are seeing more growth in the portfolio. So the last couple of months, we've seen more activity in clients, and we're expecting that to pick up. So, yes, we will relax it during the coming months as we confirm the trends and we feel more comfortable about the cost of risk. But we should start to see more growth in the portfolio.

Great. Thank you.

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

Thank you for all your questions. Now wrapping up today's call. In the first nine months of 2024, Quaker maintained a robust ROE of 17.7%. This performance is a direct result of the resiliency we have built into the business, which translated into a solid risk-adjusted name. Our performance also reflects the positive contribution from diversified non-interest revenues, which are seeing the benefits from high levels of transactional activity across the organization. At Nibaco, we're seeing improving profitability on the back of the micro-recoveries. together with our strengthened risk management practices and current loan origination. We remain committed to maintaining sound lending standards while supporting microentrepreneurs, even through complex credit cycles, and remain on track to meet our 20% ROE medium target for our microfinance business. Looking at the macro context, Peru's economic outlook for the remainder of the year 2025 remains positive, supported by low inflation, favorable commodity prices, and public investment. Progress on large-scale infrastructure projects will also provide additional support for the local economy. This positive environment aligns well with our strategic objectives, enhancing the resilience of our core operations in the region. Against this backdrop, we also reaffirm our long-term target of 18% ROE. This profitability level will be supported by a resilient NIM during a period of decreasing rates and a reduced cost of risk once the credit cycle is overcome. These dynamics will be further enhanced by diversified non-interest revenue streams and optimized efficiency as disruptive initiatives become cash flow neutral by 2026. Lastly, we're on track to achieve our ambitious goals of having disruptive initiatives contribute 10% of Credit Corp's revenues after provisions by 2026. Investments in digital transformation, especially through platforms like IAPE, demonstrate our commitment to leading innovation and financial inclusion. As we continue to expand our digital and customer-centric offerings, Credit Corp is well-positioned to continue shaping the financial services of the future. Harnessing growth from these new business models to further decouple from the macro, while providing enhanced value for our customers and stakeholders alike. Thank you all for participating in today's call, and have a nice weekend.

Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.