Credicorp Ltd.

morning everyone I would like to welcome you to the credit court limited second quarter 2025 conference call a slide presentation will accompany today's webcast which is available in the investor section of credit corps 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 align your signal to reach our equipment. Now, it is my pleasure to turn the conference over to Credit Corp's C-I-R-O, Milagros Higuenas. You may begin.

Good morning. Thank you, and good morning, everyone. Speaking on today's call will be Gianfranco Ferrari, our Chief Executive Officer, and Alejandro Pérez Reyes, our Chief Financial Officer. Participating in the Q&A session will also be Francesca Raffo, Chief Innovation Officer, Cesar Rios, Chief Risk Officer, Diego Cabrero, Head of Universal Banking, Piero Travesan, CFO of Insurance and Pensions, and Rocío Benavidez, MiBanco Chief Financial Officer. Before we proceed, I would like to make the following safe harbor statement. Today's call will contain forward-looking statements, which are based on management, care, expectations, and beliefs, 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 begin the show with remarks on the improved macro environment, a brief overview of our quarterly results, and an update on our strategy to build a more agile, balanced, and forward-looking platform, followed by Alejandro Perez-Reyes, who will provide a more detailed analysis of key macroeconomic indicators, our financial performance, and our outlook for 2025. Gianfranco, please go ahead.

Thank you, Miguel. Good morning, everyone, and thank you for joining us. Let me begin with reflections on Peru's evolving macro environment and why Credit Corp is uniquely positioned to benefit from what's ahead. Momentum is building. Temps of trade remain historically high, driven by strong gold, silver, and copper prices. Also, Peru maintains a solid trade surplus. Inflation is below 2%, real wages are recovering, and formal employment is expanding. GDP is expected to grow 3.2% this year, with domestic demand growing around 4.5%. These tailwinds are creating a more constructive backdrop. The data tells one story. The renewal activity on the ground is even more promising. While large infrastructure projects have yet to ramp up, small and mid-sized businesses are investing again, modernizing, adding capacity, and meeting stronger demands. Investments are increasingly spread across regions, laying a healthier foundation for sustained growth. In this environment, PayCop is ready not just to participate in the recovery, but to lead it. We've built a resilient, diversified business anchored in digital infrastructure, deep-flying engagement, and scalable fee-generating platforms. This enables us to perform through difficult cycles, increasingly decoupling from the macro. With improving tailwinds, we're even better positioned to capture the upside efficiently and profitably. Our Q2 results reflect that momentum, stronger fundamentals, improving trade dynamics, and disciplined trade execution. We now expect ROE for the year to reach approximately 19%, including a 50 basis points boost from extraordinary income in the first half. with a longer-term outlook of around 19.5%. This underscores solid performance, structural resilience, and the accelerating impact of disruptive platforms like GABE. While our efficiency ratio reflects upfront investments to scale these capabilities, we remain focused on unlocking operating leverage through disciplined execution in digital, data, and risk. A healthier micro-level recovery further reinforces our long-term view and strengthens our confidence in delivering sustained shareholder value. Alejandro will detail the results and updated outlook, but before that, let me comment briefly on our situation with Sunat. As previously announced, Sunat has required us to pay approximately 1.6 billion soles in alleged and paid income tax and associate interest, which was done this week. This development does not alter our legal position or our confidence in a table resolution. We continue to believe that our case has strong legal and technical grounds. We are prepared to defend our position through the appropriate channels, whether at the tax court, where proceedings may take one to three years, or, if necessary, through the judiciary, which could extend the process by an additional five years. We will continue to operate with discipline and transparency, defending our rights while building a stronger, more agile credit corp. Let's now turn to our Q2 performance. We delivered another solid quarter, with strong contributions across core businesses and continued execution on strategic priorities. These results translated into an ROE of 20.7% supported by solid operating performance and disciplined risk management. Universal banking and insurance and pensions posted very strong results, while microfinance continued to recover. Fee-based and transactional income also grew, reinforcing our diversified platform. Our innovation portfolio contributed 6.2% of risk-adjusted revenues, keeping us on track toward our 10% target for 2026. Trade dynamics improved, and FX-neutral loan growth accelerated across all segments. Orientation timelines remain healthy, particularly in retail banking and microfinance, and we expect sustained engagement in the second half of the year. Risk-adjusted NIM hit a record 5.4%, aided by improved asset quality and our low-cost funding structure. On deposits, we increased our share of demand and saving accounts to 40.6%, reflecting our digital strategy and the trust we've built with clients. Asset quality trends remain favorable, thanks to tighter origination standards, refined risk pricing, and strengthened collections. Our efficiency ratio came in at 44.2% within our expected range, highlighting the scalability for our digital investments and our disciplined approach to cost control. Capital levels remain solid across all businesses. Our performance this quarter reflects more than improved macro conditions. It's the result of a deliberate multi-year strategy to build a more agile, balanced, and forward-looking platform. In recent years, we've modernized systems, built end-to-end digital capabilities, and reimagined client engagement across each of our businesses. These investments continue to pay off in performance, resilience, and adaptability. We're encouraged by a strong fraction of our disruptive innovation portfolio, a key pillar of our long-term strategies. Credit Corp. is no longer just a credit growth story. we're structurally shifting to a more balanced model where seed generation, client engagement, and scalable innovation are just as critical as lending. This transformation strengthens our resilience and positions us for more consistent, higher-quality growth. It's the foundation for the finance of the future, more inclusive, more digital, and more sustainable. IAPE continues to scale in both reach and relevance, now serving nearly 15 million monthly active users, equivalent to 75% of Peru's economically active population. Its monetization strategy is advancing, making it one of the top five contributors to fee income in the Peruvian financial system. Transaction volumes and engagement remains high, and we're expanding services and deepening client interaction. With platforms like Gapace and promising ones like Tempo, our soon-to-be digital bank, we're scaling high-impact services that grow revenues and deepen relationships, transaction by transaction, not just loan by loan. As part of our long-term vision, we're building the next-generation capabilities to future-proof our businesses and redefine value creation for clients, employees, and shareholders. This includes advancing digital onboarding, behavioral scoring, embedded finance, and ecosystem-based distribution. These are not just pilots. They are core building blocks for lasting differentiation. We're embedding AI and data management across our operations to generate value in tangible, scalable ways. Let me highlight three key areas. First, we're elevating the customer experience through hyper-personalization and advanced chatbots and voicebots making every interaction faster, smarter, and more intuitive. Second, we're enhancing operational efficiency by equipping our teams with AI co-pilots and productivity tools. These are already driving productivity gains of over 30% in code generation and simplifying daily workflows for commercial teams and analysts. Third, we're strengthening strategic decision making by harnessing data insights to identify new market opportunities, optimize our offerings, and increase earnings through solutions such as ALM optimization, smart customer prioritization, and strengthened risk management framework. By invading AI deeply into how we operate, we're not just innovating, we're building a future where both our clients and our people benefit from smarter, faster, and more effective solutions. This commitment positions us at the forefront of our new industry transformation. Our goal is to shape the future of finance in our region, not only through technology, but through a model that is inclusive, efficient, and highly engaging. Looking ahead, we remain focused on execution, innovation, and long-term value creation. I invite you to join us in New York on October 9th for our Investor Day, marking the 30th anniversary of our IPO. Together with our business leaders, I'll share how we're transforming finance to improve life and positioning our platform to lead in a changing region. We'll outline our financial services model of the future, anchored in innovation, inclusion, and data-driven client engagement, while scaling distribution and unlocking synergies across our ecosystem. We'll also show how AI advanced risk and data capabilities and discipline execution are future-proofing our business for sustainable growth. Having said that, let me pass the presentation to Alejandro.

Thank you, Gianfranco, and good morning, everyone. This quarter's 2047% ROE reflects sustained momentum in our core businesses and the increasing contribution of our innovation portfolio. These results include a positive 120 basis point interest related to a relevant gain in B2B's investment portfolio. Similar to what we communicated last quarter, we revalued Bolivia's balance sheet using a more markedly festive exchange rate. We generated an accounting contraction of 2.8% in credit card total assets this quarter. As I discuss the quarter highlights, I will focus on the year-over-year operating trend. Loan pressures in quarter end balances dropped 4.1%, impacted by the revaluation of Bolivia's balance sheet and a depreciation in BCP's dollar portfolio following an appreciation of the Peruvian dollar. Excluding this effect, underlying loan growth for the quarter was 2.6%. This increase was driven primarily by BCP, particularly through mortgages and consumer loans in retail banking and by the bank. Asset quality has improved materially year over year. NPLs contracted across the board, and Credit Corp's NPL ratio stood at 5% this quarter. The cost of risk fell to a low of 1.6% on the back of fortified risk management and supported by improvements in payment performance and in the Peruvian economy. Net interest income increased 4.2%, spurred by a contraction in interest expenses after interest rate fell and low-cost deposits expanded, accounting for 67.2% of the funding base. In this context, NIM remained resilient at 6.4%. High single-year growth was registered for other core incomes. C-income increased 8.2%, boosted by transactional activity at YAPE and BCP. Gains on FX transactions rose 7.9% through higher volumes at BCP. Lastly, the insurance underwriting result grew 11.2%, reflecting a stronger insurance-serving result in the live business. On the efficiency front, our cost-to-income ratio stood within guidance at 44.9%. Next slide, please. Our GDP growth is around 3% year-over-year in the second quarter, down from close to 4% in the first, due to a slowdown in the primary sector and a higher comparative base from the previous year. However, domestic demand remains strong, expanding around 5% and outpacing overall GDP growth since mid-2024. This sustained momentum reflects the economy's current mid-cycle phase and ongoing support from elevated export prices. As a result, GDP expanded close to 4% over the last four quarters to the second quarter of this year, while domestic demand grew around 5%. High-frequency indicators continue to signal economic dynamism, and they're filled by steady recovery in employment and real wages. More importantly, Key prospects for private investments such as heavy-duty vehicle sales, capital goods imports, and terms of trade are expanding at double-digit pace. Notably, terms of trade have reached their highest level in 75 years, driven by elevated gold, silver, and copper prices, which together account for roughly half of Peru's exports. Supporting this trend, the Central Bank Business Expectations Survey shows that investment sentiment reached a historical high in the second quarter. suggesting that private investment should strengthen. Furthermore, the favorable low-inflation environment continues to support recovery in private consumption. Hence, adult economies is expected to grow above 3% each year, with domestic demand rising around 4.5%, which would represent the higher growth rate in 12 years, excluding the post-pandemic drought. On the external front, elevated low uncertainty persists. Regarding President Trump's announcement of corporate tariffs, The direct impact on Peru is expected to be very limited as corporate input materials are not subject to the 60% target. Next slide, please. The federal return has kept the quality rate stable throughout the year, with low-income loss emerging from a minority of its members. Chairman Pabos has continued to communicate a cautious approach toward lowering rates. Even the slowdown of the labor market affects recent fallout pricing between two and three rate cuts this year. The persistent percentage surrounding President Trump's announcement continues to contribute to the unpredictability of the external environment. In Peru, annual inflation has remained below 2% for seven consecutive months, which constitutes one of the lowest trends for both advanced and emerging economies. The central bank has lowered the pace of rate cuts as it approaches its neutral level, making its last cut in May, when it dropped the rate 25 basis points to 4.5%. In Colombia, inflation has low to 4.9% year-over-year in July, which remains above the upper bound of the target range of 4%. Inflation concerns and fiscal challenges have led the central bank to maintain a cautious stance. In Chile, the central bank cut its rate to 4.75% during its last meeting, after holding its quality rate stable throughout 2025. The move came as inflation reached 4.1% year-over-year in June, the lowest level since September of last year. a rate that appears unlikely in the next meeting given that inflation accelerated in July. Next slide, please. BTP raised a strong ROE of 30.9%, which reflects receding margins, diversification of income, and a low level of cost of labor. This result includes a 2% point impact of a significant gain realized on the investment portfolio. On a quarter-over-quarter rate, Total loans measured in corporate rent balances rose 1.4% or 2.5% in FX mutual terms. Growth was mainly driven by retail banking, which grew 2%, driven by mortgages and consumer loans. The wholesale banking portfolio, which is volatile due to the nature of the short-term loans, increased 0.8%. The growth recorded in middle market banking was almost completely upset by the contraction raised in corporate banking. MIMS stood at 6% due to an improvement in the asset mix and a drop in the funding cost. NPL volume fell 2.2%, mainly driven by wholesale banking. In retail banking, NPL volume remained relatively stable both in individuals and SMEs. Provisions contracted 4.8%, driven mainly by an improvement in payment performance in wholesale banking. In retail banking, provisions in individuals dropped slightly due to risk model calibration. This evolution was partially affected by growth in provision in FME-PINE, following an uptick in disbursement of lower-ticket, higher-yield loans. The cost of risk raised at a low 1.2%, impacted by initiatives this year to shore up risk management, and bolstered by several macro conditions in Peru. In this context, ZTP's risk-adjusted means stood at 5.2%. Other core income rose 16.4%, fueled primarily by gains on excess construction, as volumes rose via adept pricing strategies and market volatility. Moreover, fee income rose from the tails of 40 transactional levels. Other non-core income this quarter includes a relevant gain on securities of $106.6 million, driven by a sovereign bond exchange that extended the duration of the investment portfolio. From a year-over-year perspective, I would like to highlight the following dynamics. Loans in corporate balances remained relatively stable, given that 2.1% growth in retail banking was offset by a 2.4% contraction in wholesale banking, which reflects depreciation in the dollar-denominated portfolio. In FX mutual terms, retail and wholesale banking drove average growth of 2.6% in BTP's portfolio. NPL contracted across all BTP segments, primarily in wholesale and SME deals. In the case of individual, MPL fell due to debt cancellations on the lack of higher liquidity and due to an improvement in non-regulation and debt collection of managers. Deals remained resilient, bolstered by a downward trend in the funding cost. The cost of risk fell across middle banking segments as payment performance improved due to a greater share of lower-risk businesses within the loan portfolio, supported by a strengthening economic factor. The efficiency ratio stood at 38% for the first half of the year. Growth in operating expenses was spurred by an uptick in provisions for variable compensation, which rose alongside stronger business performance and initiatives to hire digital talent for strategic projects. The ratio of our core income to assets accelerated the support trend, reflecting the positive impact of initiatives to diversify DCP's income streams. A strong fee and effect gain result contributed to this acceleration. Next slide, please. JAPE continues to lead Peru's digital financial service expansion, with nearly 15 million mass reactive users at the end of the second quarter. This year is equivalent to 75% of the economic reactive population. With consistent quarterly growth over half a million users, JAPE remains on track to meet its 2026 target of 15.5 million mass reactive users. User engagement remains robust, with an average of 54.5 monthly transactions and 2.7 functionalities used per user, signaling deeper adoption of the app ecosystem. Monetization and operating leverage continue to strengthen, where revenue per monthly active user reached 6.5 solid, while expenses per monthly active user stood at 4.4 solid, as an increasingly larger share of users contributed to revenue generation. Payments remain the primary revenue driver, fueled by growth in the average ticket and bill payment. Lending has emerged as the fastest-growing segment, now serving 3 million users and accounting for 18% of the average total revenue. This growth reflects an uptick in loan disbursement, driven by heightened effectiveness in lead conversion. The launch of S&E loans in June marked a strategic move into higher-value long-term credit growth. By the end of the second quarter, the average revenue had doubled year-over-year to represent 5.5% of credit growth's risk-adjusted revenue. YAPI remains focused on deepening user engagement, scaling monetization, and enhancing its value proposition as it advances financial inclusion. Notably, nearly 30% of YAPI loan recipients access their first loan in the formal financial system through the platform. Next slide, please. Ongoing economic recovery is possibly impacting the microfinance sector in Peru. In this context, the amount of profitability continues to rise and stood at 16.3% this quarter. supported by a rebound in loan deterrence in recent quarters, strengthened credit risk management, and effective interest rate strategies. I would like to highlight key quarter-over-quarter dynamics. Loans grew 2.1% in quarter-end balances, mainly driven by a drop in write-offs after more stringent origination guidelines were instituted one year ago. The NPR ratio fell for the fourth consecutive quarter to stand at 6.1% in language-prepandemic levels. MIM rose to a peak of 14.4%, its highest level since before the pandemic, boosted by a shift in the MIG towards more cheapest, higher-year loans. In parallel, the cost of risk rose 25 basis points to stand at 5.4%, while risk-adjusted MIM situated at 10.3%. From a year-over-year perspective, the decrease in the cost of funding, coupled with her active loan pricing management, helped sustain the strong MIM. The cost of risk held 217 basis points, but lower-risk vintages continued to the inflation and now account for 70% of total risk. Operating expenses remained under control and efficiency stood at 52.4% for the first half of the year. In this context, the bank of first-hand contribution to ROE was 15.1%. Transmission and co-op are targeted for a sustainable ROE in the low 20s. El Banco de Colombia's results continue to pick up on the lack of measures taken last year and also reflecting an improvement in the economic environment for the macrofinance sector. Loss is currently steady and this is controlled, and the operation reported 11.1% of its ability at the quarter end versus losses at the same point last year. Next slide, please. As a group of activities, insurance and the revenue results remain strong this quarter. supported by solid operational dynamics in both the P&C and live businesses, with ROE standing at 21.1%. On a quarterly basis, net income rose 23%. Insurance underwriting results rose 27% on the back of a decrease in insurance service expenses in the live business, which was driven by a drop in claims in credit life and disability and survivorship. The net loss on security is dropped in line with a lower impact of credit downgrades on a couple of assets in the investment portfolio this quarter. On a year-over-year basis, net income rose 16%, primarily due to the full consolidation of corporate health insurance and medical services operations. Insurance underwriting results increased across both life and P&C businesses, particularly through lower claims in individual life and credit life in the former and cash and personal life in the latter. These shifts were partially upset by an increase in the net loss on securities, which was impacted by credit downgrades on a couple of assets in the investment portfolio. Next slide. Profitability of investment management and advisory business remained resilient this quarter, with ROE standing at 15.5%. On a quarter-over-quarter basis, core income-generating businesses delivered strong results this quarter, reflecting favorable treasury performance. improved capital market activity, particularly in the serving unit, and continued growth in wealth management, with AUM in U.S. dollars at 6%. However, this current business momentum was offset by a temporary increase in operating expenses due to a low base in the first quarter, resulting in a 6% decline in net income. On a year-over-year basis, net income decreased by 20%, mainly due to the absence of last year's one-off income from a now-discontinued corporate finance business. Nevertheless, stronger treasury performance and lower tax expenses help partially offset the income. Next slide, please. Now I would like to review Credit Corp's consolidated evolution. As we mentioned earlier, we revalued Bolivia's balance sheet once again this quarter, leading to a contraction in Credit Corp's balance sheet. I will now focus on explaining the underlying quarter-over-quarter dynamics. The yield on interest-earning assets increased 21 basis points due to a shift in the interest-earning asset mix. On the liability side, a more expensive deposit means less than the funding cost to increase two basis points. On a year-over-year basis, interest-earning asset yield fell 27 basis points, driven by market interest rate dynamics and by a decrease in loan share of the asset structure. On the liability side, the drop in market interest rate and the lower cost funding structure drove a 42 basis points reduction in funding costs. In this context, NIMS remained resilient and stood at 6.42%. increasing nine basis points. Going forward, loan growth, particularly in retail segments, should help us sustain resilient means despite lower interest rates. Next slide, please. Moving on to loan portfolio quality. As the quality shows slight further improvement this quarter as NPR volumes continue to contract across segments, falling to levels below those reported two years ago prior to the 2020 recession. Amidst ongoing economic recovery, provisions have dropped over the past 12 months due to an improvement in payment performance and successful risk management measures at both BCP and NIRAMA. The positive impact of this improvement exceeds expectations, which kept provisioning levels low once again in this quarter. In this context, the NPL coverage ratio rose and stood at 109.5%. Going forward, we will continue to accelerate nuclear origination and manage risk comparatively. We expect the cost of risk to rise, but remaining within our appetite. Next slide, please. Moving on to core income, we recorded a 5.3% year-over-year increase. First, net interest income rose 4.2%, supported by lower interest expenses on an improved funding mix. Second, other core income grew 8.1%, fueled by key income through YAPE and core transaction activities, and by gains on FX transactions. We continue to set new highs in our risk-adjusted means, reaching 5.44% this quarter, a 104 basis points increase year-over-year, driven by resilient means and a lower cost of risk. The efficiency ratio for the first half of the year stood within guidance of 44.9%. Operating expenses grew 11.4%, fueled primarily by core business at BCP and by investments in our innovation portfolio. Growth in core expenses in TCP was driven mainly by provisioning for variable compensation and higher IT expenses. Expenses for our innovation portfolio rose 15%, led by IAPE, TEMPO, and CULTI, which represented 83% of disruptive expenses in the first half of the year. Next slide, please. ROE for the quarter stood at 20.7%, driven by strong results across all our businesses. Meanwhile, ROE for the semester was 20.9%, supported by solid business performance and bolstered by an extraordinary gain from the Van Medica transaction last year. If we adjust for this transaction, the recurring ROE is 20% for the semester. This quarter, the recurring net income reached a record high as we leveraged a differentiated funding structure and low cost of risk. More importantly, we continue to strengthen revenue streams beyond lending while advancing our transition towards a more diversified and resilient business model. As we communicated earlier this week, the full amount specified in the TUNAP resolution against Grupo Crédito, announced on June 30th, has been canceled. This payment totals almost $126 billion solid for a less than paid income tax and associated interest. This has not changed our stance in this case. We reaffirm our decision to exercise all legal rights available to charge the resolution as we consider them unfounded. We are confident in a favorable outcome and continue to defend the contingency as we move. Hence, no stress provisions have been deemed necessary. The payment does not affect the operations of our subsidiary. However, it will impact cash flow at the critical level. Consequently, we do not anticipate issuing extraordinary dividends this year. Now, I will move on to our alliance. Next slide, please. As previously stated, our GDP growth expectation remains unchanged at around 3%. We expect our loan book to grow around 6.5% year-over-year, measured in end-of-period balances. This is equivalent to around 3% measured in average daily balances. These figures do not consider the impact of the revaluation of BCP-Bolivia's balance sheet, but they do consider the US dollar devaluation against the Peruvian source. Amidst a more dynamic Okay. Amid a more dynamic economic backdrop and strengthening of regeneration levels in the first half of this year, we expect balances growth to accelerate over the second half, driven mainly by retail banking at BTP and by Nibank. The loan acceleration anticipated and the shift in the mix towards retail should support NIM while interest rates trend downward. Accordingly, we expect NIM to stand in the upper end of our guidance of between 6.2% to 6.5%. Although we expect a slight increase in the cost of risk in the second half of this year due to stronger retail originations, our guidance has been updated to 1.8% to 2.2%, to reflect lower than anticipated provisioning levels in the first half of 2025, as the positive impacts of our risk management measures and improvements in macroeconomic conditions exceed expectations. Accordingly, we are also adjusting our risk-adjusting guidance upward to between 5% and 5.2%, On the efficiency front, we maintain our guidance range for 2025. The income is expected to grow in the low double Bs this year, supported by an acceleration in economic activity and ongoing diversification of our income sources. Additionally, insurance and the writing results are expected to remain solid and relatively stable compared to 2024. We are increasing our full-year ROE guidance to around 19%. This new guidance already includes extraordinary gains from our medical transactions, which we estimate will have an impact of 50 basis points per year. This revision reflects both solid core performance and sustained discipline on the risk side. While global uncertainties remain, we believe the fundamentals are in place to support this higher level of profitability. Finally, as Gianfranco mentioned, we are revising our long-term sustainable ROE range upwards, from 18% to around 19.5%. This adjustment is primarily driven by stronger expectations of long-growth dynamics, particularly to the presentation of new higher-yielding segments, which leads to a more favorable long-mix evolution and an improvement in risk-adjusted needs. Moreover, we are seeing enhanced expectations for fee income and gains on foreign exchange operations, largely due to increased transactional activity across a diversified business line. These factors contribute to a more optimistic efficiency outlook compared to our previous tests.

We will now begin the question and answer 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 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 comes from Brian Flores with Citibank. Please go ahead.

Hi Tim, good morning, congratulations on the results and the new guidance. I wanted to ask you on cost of risk, because I think it's a relevant improvement in your guidance, and if you could elaborate a bit on what is driving this, and also you mentioned very recently that you're going to accelerate on retail, making the second half a bit, in these terms, a bit riskier. But just, if you could elaborate on the long term, what is making you be a bit more constructive on a lower cost of risk that will be very helpful? Thank you.

Good morning. Brian, I'll ask Cesar to answer your question.

Hi, Brian. Thank you for the question. Yes, first of all, it's good to explain a little bit the results of the first half of the year. Last year, we were in We take several measures to assure that all our portfolios are under the risk appetite. So, in addition to improvement in capabilities, we restricted origination in certain segments. As a result of all of these effects, we have had, during the first part of this year, a very low cost of risk, actually below our initial expectations. With one minor exception, all our portfolios are under the risk appetite. And beginning more clearly in the second quarter of this year, we started to originate higher-yielding, higher-risk portfolios in a successful way. So what we are anticipating in the second part of the year is to have the reflection of this improved origination and higher-yielding risks that are going to change the mix. And this trend should continue in the following years.

Just a complimentary self-answer. Bear in mind that we do not manage our portfolio based on cost of risk, but on risk-adjusted gain, which is very relevant.

No, perfect. And then a quick follow-up on the guidance. You reiterated the efficiency ratio, and I think you're very efficiently becoming increasingly digital. If you could share with us your long-term vision on the Cisco branch network. Are you planning to work out any of your prime real estate holdings? You could elaborate if your branches evolve into a more, I would say, transactional hub. How are you thinking about this in the long term? Thank you.

Actually, Brian, this is a subject we've started to deploy maybe four or five years ago. At the peak, at BCP, we reached up to close to 450 branches. Today we have 300. So there's been a reduction of about a third of the network. More importantly, I would say that the number of branches, the role of the branch has changed dramatically over the last few years, from more transactional vision to more educational and commercial vision. That path will follow. I would say that the bulk of the reduction has already been done. We do not plan to be up against it going forward. However, the world is changing so fast that we'll see.

Okay, thank you.

The next question is from Lindsay Sheena with Goldman Sachs. Please go ahead.

Hi. Thank you for taking my question, and congrats on the increased guidance. Quick follow-up on cost of risk. When you think about cost of risk long-term, where do you see the ratio trending, and how long should it take to get there? Could it be structurally lower, or should it continue to kind of accelerate to your long-term range? Thank you.

Thank you for the question. Once we reach, I would say, a more representative level at the end of each year, we expect for some years to increase the cost of risk based on the strategy that we are outlining. I am going to give a very simple example. Our cost of risk now is going to be around, let's say, 2%. This is a combination of wholesale retail portfolios. But if we are starting to reinate in higher risk portfolios, for example, only 1 billion portfolios, that has a cost of risk of 8%, but brings a margin of 20% additionally, is going to increase five basis points, the overall cost of risk, the portfolio, but is going to improve significantly 2.5 times that the profitability of the business. And that's the strategy that we are going to follow once we have stabilized the portfolio and we are starting to build the portfolio with new tools. So, for some years we increased this higher risk, higher yielding portfolios, the overall cost of risk should increase, but with increased profitability.

Again, the whole strategy and growth strategy actually is based on risk-adjusted means, as you mentioned. As a matter of fact, we also include acquisition costs and so on. But regarding the risk-adjusted means, this is how we manage it.

Thank you. If I could elaborate on that a little bit. For loan growth this year, can you break down your expectations And then I know you switched from average balances to period end, but is there any better expectation? Is that mostly on retail? And then just segment by segment. Thank you.

Alejandro? Yes. Hi. Yes, we made that change after a conversation with a lot of investors that preferred the end-of-year balance. But we still gave the equivalents. As we mentioned during the presentation, we are expecting growth end-to-end to be 6.5%, including the valuation of the solid, which is stronger to the dollar than what we were expecting. And if that comes particularly from the more retail segment, both in Ulanco and then at BTP with mortgages and consumer credit. So, I mean, we're expecting most areas to grow, but those areas should be the ones picking up more. We've already seen that pick up in the last few months, and we expect that to continue and become a little bit stronger in the next part of the year.

The next question is from Fernando Maloney with Autonomous Research. Please go ahead.

Hi, everyone. Thanks for taking the questions. Renato here. So just quickly on loan growth for this year, I'm wondering, just thinking of the balance from the beginning of the year and what has materialized, if you could explain a bit on what diverged the most here. and the adjustments we've made. And then on the long-term guidance, and congrats again for raising the guidance for this year and for the sustainable ROE. I just wondered if you could expand a little bit on the comments of the drivers for the higher guidance in the long term. Thank you.

Sure. I mean, for loan growth, as I have mentioned, I mean, And tying it up to the improvement in the economy that we've been mentioning, both Gianfranco and myself, really, we are seeing a very strong economy today and a much better situation for consumers. That ties to what Cesar was mentioning about our risk capabilities and our regulation capabilities is basically what we expect to translate into higher growth in lending in particularly, as I was saying, on the retail side and the consumer side and microfinance side. And by the way, it's already been happening so far. I mean, in mortgages, effect neutral for the year, we've grown, for a whole year, we've grown 6.5%. In consumer, almost 6%. And we're seeing that actually pick up in the last couple of months. So we expect that to continue. And with these capabilities and our distribution capabilities, and I'm tying this to a longer term ROE, to continue to access more, let's say, more of the consumer segment of retail with a good risk-adjusted mean. So that is one of the main drivers for the sustainable ROE, that the loan mix that translates into a better risk-adjusted mean. And also, on the fee income, we've been building a lot of different businesses and lines around that, and driven by YAPE, but there are other things that we're also developing that are basically important sources of growth in the coming years. If you put those together, it also brings us to our expected 19.5% ROE.

Maybe, Fernando, just an additional comment on what Alejandro just mentioned. If you remember, a few years ago, we stated a couple of guardrails regarding how much we were going to invest in our disruptive initiatives. And one of those guardrails was up to 150 basis points of ROE. this year, 2025, that impact is going to be close to zero. And going forward, as we see, that should be positive. That drag should be eliminated. Obviously, again, since the world is changing, the pace is changing, we may have to invest or another idea may come. But today, the vision we have is that the digital investments going forward, from 25 onwards, will generate positive ROE rather than negative ROE. And as we've mentioned before, since we've been very conservative, especially in how to register the investments we've been doing in the digital transformation initiatives, basically 100% or 90% of those investments would register them as expenses. So the equity part of the digital investment is close to zero. It's not zero, but it's really irrelevant to the income they will generate going forward.

That's very clear. Thanks very much.

The next question is from Carlos Gomez with HSBC. Please go ahead.

Thank you for clarifying the bond exchange. Can I ask you briefly, is that after tax or before tax?

Again, it's actually before tax, but government bonds don't have income tax, so it ends up going all the way below the tax.

Okay, thank you. And so, I'm keeping here my... My real question is about JAPE. And we look at the numbers that you publish, and I estimate that right now you are showing an income contribution of around $25 million. I could be wrong about that. How much do you think JAPE can contribute this year, next year, and in the future? What's the number that you are contributing internally and you are talking to investors about?

Hi.

The number you mentioned is correct. What we are expecting is as JAPE begins to increase its loan portfolio, its contribution will be much larger. And we are expecting for the next three to five years, the goal would be for JAPE to be the second largest line of business that Clericot has. Primarily due to its lending business in retail and SME segments, and also its inclusion in the newer segments, in the newer lines of business as marketplace and commerce.

So that would be second to, I guess, second to BCP, and therefore larger than Pacifico. Are we talking 150, 200?

You have to do your math, Carlos. We don't know the specific figures. You have the figure of BTT. You have the figure of Pacifico. Do the math.

Okay. I'll do that. Thank you. Thank you.

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

Yes, hi, good morning. Thank you for the call. Just following up on YAPE, can you comment on the relative quality trends at YAPE, what's your cost of risk, cost of development, and also some color on the lending, what kind of types of loans are you doing, the term of the loans, has that changed in the last few months, and do you have a target for how much lending should be as a percentage of revenues at YAPE? Thank you.

Yes, maybe I'll start on this, and just so you can compliment me. So, Alonso, today still the IAPE portfolio is very small, even though we're depressing over a million loans per month. The bulk of that is mono installments, so the duration is actually less than 30 days. What we're doing is basically, even though that business is profitable, the real target is to lend to learn to lend to the best performance of those initial clients. We're building up multi-installment loans in the consumer finance business, which is growing rapidly. And we just started to do some testing in the SME market also. NTLs, I don't know, Francesco, if you have the... Loading, annualized. So, again, the risk-adjusted lean is very, very, very good, a lot. But we are quite positive on the impact of lending business at IAPE, and again, we're not disclosing how much of the income or profits should be generated by lending, but obviously it's going to be the major contributor, which by the way, today it isn't.

Yes, thank you for that. And just to follow up generally on the cost of risk guidance, so if it's correct that the expectation then for the second half of the year should be closer to 2% cost of risk for credit cards?

The expectation for the whole year is in the range that we have stated, between 1.8 to 2.2. That implies, during the math, that the second plant of the year should be closer to 2 than closer to 1.8, for the reason that we have already stated.

Right. Fantastic. Thank you very much.

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

Hi, everyone, and also congrats on the quarter. I have just a question on your deposit franchise, and we see the economy in Peru doing better. And your deposits are going way above the loan, so don't get me wrong here, but when I go to your low-cost deposits, They are down a little bit, quarter for quarter, some 5%. So just share if you need to be seasonal. On year-over-year, they are still growing. But given you have so many different verticals, I think a 4% or 5% annual growth on deposits could it could be a little bit higher right so just trying to understand uh on on deposits uh why it was down the low cost uh and then i have a second question regarding dividends um you are generating a lot of capital long look has been a little bit like lustre so the the quarterly question on dividends uh how should you think about your extraordinary dividends for this year thank you yes yes uh

What you see is seasonal. Regarding low-cost deposits, if you take a look at year over year, growth has been quite important. And because of your question, I would like to share an information that was shared by the central bank this week. The usage of cash in transactions in Peru has gone from 95% of photo transactions done in cash in Peru in 2013 to 64%. So, that's over 30% reduction. No, 3,000 basis points reduction. The major driver for that decline has been the digital wallet. And the major digital wallet in Peru is Japan. Therefore, we have quite confident that the low cost deposit growth and market share will still be there, because these are great news, but if you see it, there's still two thirds of the market doing transactions in cash. So there's a lot of room for growth there. That's regarding deposits. Regarding dividends, the policy is exactly the same we haven't changed the policy the issue that Alejandro mentioned during his speech since we have to pay 1.6 1.7 billion dollars to FUNAD we don't have even though that doesn't affect our P&L it does affect our cash position therefore we won't be paying this year an extraordinary dividend in the second half of the year

Maybe you have to compliment Gianfranco. That is exactly right. The main impact that we're having of this Sunat situation is actually a cash impact. The money that we expected to pay out as a extraordinary dividend is the one that we're using to pay this claim by Sunat. What I wanted to mention is that this doesn't change going forward our expectations for next years ordinary dividend and ideally also extraordinary dividend. So, it is just an impact on this year because it is the money that we were expecting to pay out as an extraordinary dividend.

Oh, perfect. Thank you very much.

Again, if you have a question, please press star, then 1. The next question is from Arguez Soto with Santander. Please go ahead.

Thank you for the presentation and the opportunity to ask questions. My first question is regarding your digital initiatives and your targets for the short term. You have mentioned the objective of these initiatives to represent 10% of revenue by 2026. I would like to understand if the target refers to the whole year, a specific quarter, You were already at 6% in the second quarter of the year, so it will be interesting to see your pulse on the run-up to get to this target.

Sure.

Francesca? Yes, thank you, Andrés. Our goal was 2026, 10% for the whole year. We're very confident with what we've seen with IAPES results. And as you know, what we've shared before is that the idea around the innovation portfolio is have also initiatives graduate. So the challenge for the innovation portfolio is to continue to generate a new set of initiatives around tempo, around cruelty, around ego. So this is the way we're viewing it. We're very confident because we have a good venture around IAPE, but the work is still there. So it's on an annual basis.

Okay. Thank you, Francesca. My second question is regarding the new medium-term ROI target of 19.5%. It was very helpful, your comment, Gianfranco, that this partially reflects not considering the detractions that you are getting from digital initiatives, which are already broken. But it looks like it's still a conservative one, considering that as they start to ramp up, they will actually contribute to profitability and they will take you ROE. to even higher levels. So what prevents you to get a more ambitious target for your sustainable ROE? That will be the point number one. Point number two, you mentioned that part of what we are seeing here is better research of the mean, higher contribution leading to better efficiency. In the past, you used to have an efficiency target tied to this 18% medium-term ROE. What is your new efficiency target in these new objectives?

Yeah, maybe let me take the efficiency question and then I'll pass it to Alejandro. And you may comment on the impact of the E. The efficiency ratio with this new venture growing at a much faster pace than the incumbents, is tricky because they start to become profitable, but their efficiency ratio is much higher than the efficiency ratio the incumbents have. So, the more IAPE grows, the more inefficient we become. Obviously, at some point in time, IAPE's efficiency ratio should be much lower than, I don't know, the BGP's efficiency ratio. But it's not the situation today. That happens with a lot of the, most of the the new ventures were deployed. That's the main reason for efficiency ratio. Obviously we keep investing in running the business and also in the transformation, and also as I mentioned before, the bulk of what we've done in terms of investment in the digital transformation, mostly in the new ventures, we've registered them as expenses. So that's how It's like we've been front-loading expenses and going forward. There's a trade-off, right? As we are successful, digital initiatives will grow, but deteriorate the cost-to-income ratio, but at the same time, since they become profitable, the ROE impact shouldn't be negative, as I explained before. I made it clear.

What I would like to get here is the number that you're putting as the target is probably conservative considering this math that you described and to the point of the card rails that you used to have Are they still valid? Are you still operating under the assumption that the CISROPTI initiatives are going to take away 300 basis points of efficiency and 150 basis points of ROI? Or this is something that we are going to be approaching with support?

Yes, again, 150 basis points impact. As a matter of fact, this year is going to be, let's say, zero. So that's not a negative. It won't be a draft this year. Of after starting from 2026 onwards, should be positive. That's the ROE answer. The cost-to-income answer, the efficiency ratio, is another answer, because as I mentioned, completely YAPE. YAPE is profitable now, but the cost-to-income of YAPE is not 40-something percent, it's much more. The larger YAPE becomes, the more that quote-unquote negative impact on cost-to-income has. going forward, that may change and end up being much more efficient than let's say DCT. And in that case, the cost to income ratio will decrease.

And that is fundamentally a function of lending, I suppose. Yes.

So the growth, the major source of income growth for YAPE, the marginals income growth for YAPE for the upcoming year is what we expect the lending business is going to become.

Yes.

And Francesca probably mentioned this before, the three to five year period for the run path. Is this still a valid time frame or when are you expecting to accelerate YAPE lending when those are going to start to become multi-sculpting and larger loans?

They are very multi-sculpting, but you know very well, Andrés, we're conservative, so we're not going to bet the house going to grow dramatically the portfolio. We feel very comfortable with what we're doing, both regarding risk, cost of risk and growth. the more comfortable we become and the faster we will deploy the whole project. We do not have a specific answer today on when we will achieve what we're doing.

And if you focus on the nature of this planning, it's an exploratory business at the beginning. We deploy pilots We monitor the pilots when we discover a specific segment that performs particularly well, we scale that. In these cases, we can be scaling up certain parts of the portfolio rapidly, but sadly to have discovered profitable segments. So it's a discovery process, and we have great expectation that it's a discovery process.

Thank you, Cesar. What percentage of YAPE borrowers are already in a multi-installment scheme?

Do you have that period?

50-50. 50-50. The balance.

The balance is 50-50.

Not the number. You're right. Not the number of clients, but the balance is coming up.

Because, again, since the mono-insolvent loans are mono-insolvent, the maturity, the duration is less than one month. Less than one month. You have to work a lot to maintain the balance.

That is going to shift dramatically in the upcoming years. Perfect. Thank you. Thank you, guys, and congratulations on the results.

Thank you. 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, and thank you all for your questions. Q2 2025 was another quarter of solid execution of trade calls. Momentum in the economy, our business, and our innovation agenda give us the confidence for the rest of the year and beyond. The income is scaling. Digital engagement is deepening. Trade demand is returning. And we're delivering value consistently, even amidst regulatory uncertainty. As I noted earlier, we operate in a more supportive environment but are not dependent on it. Our platform performs through volatility and is now better positioned to capture upside more effectively. In this context, we've revised our long-term sustainable ROI upward from around 18% to approximately 19.5%, reflecting the benefits of a more diversified, inclusive business model as we expanded to new segments and broadened our addressable market. Our strategy will drive higher risk-adjusted PNIM to a more retail-oriented loan portfolio, while increasing transactional and non-interest income from our disruptive initiatives. These drivers will accelerate income growth, enhance efficiency, and strengthen our ability to deliver sustainable returns. Looking ahead, I invite you to join us on October 9th in New York for our investor day, where we'll share how Credit Corp is positioning to lead the next chapter of Latin American finance. We look forward to seeing many of you there. Thank you for your continued trust.