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Operator
Good day, ladies and gentlemen, and welcome to the Credicorp Ltd third quarter 2011 earnings release conference call.
My name is Veronica and I'll be your coordinator for today.
At this time, all participants are in a listen-only mode.
Following the prepared remarks there will be a Q&A session.
(Operator Instructions).
As a reminder, this conference is being recorded for replay purposes.
I would now like to turn the presentation over to Mr.
Alvaro Correa, Chief Financial Officer of Credicorp.
Please proceed, sir.
Alvaro Correa - CFO
Thank you, Veronica.
Good morning, everyone and welcome to Credicorp's third quarter conference call for 2011.
The strong business activity reported during the third quarter was above expectations and reflects the increasing confidence the new government is slowly rebuilding.
In fact, the concerns that prevail nowadays within the business community are more related to the still unresolved financial problems in the developed world that could end up affecting our economy.
The results of Credicorp for the third quarter show a robust loan book expansion measured through average daily outstanding balances as well as growth in other business fronts.
The continuation of business activity is probably the result of a relatively fast recovery in business confidence, given the series of positive messages and adequate appointments in the most important and business relevant positions in the government.
So move please to page 3, where I would like to show briefly some indicators which reveal the current environment.
Economic activity in Peru remains sound, with real GDP growth above the Latin American average and showing a drop during the period of the presidential election and a recovery thereafter.
Business confidence also recovers gradually as the actions and declarations of the newly appointed cabinet and government officials show support of the existing economic model and puts emphasizes on maintaining a friendly environment for private direct investment.
Electricity production, a typical indicator of business activity, also shows an important recovery.
Country risk showed a peak due to the political risks in April, which starts recovering as the Nationalistic Party moderated the political speech.
The last jump followed by a recent improvement, however, is market related rather than a reflection of our internal political and economic scenario, as is also the volume of market cap of the Peruvian companies.
Another noteworthy chart is the one that shows the exchange rate, which reveals the strong ability of the Peruvian nuevo sol, putting it as probably the most favored currency in the region.
Next page, please.
Though net income of $171 million for the quarter is an excellent result, the strong performance of Credicorp's businesses is not evident in this bottom line.
It shows a 1.% -- 1.9% drop in net earnings, which is in fact mainly the consequences of currency translation losses at the different subsidiaries given the short-lived strength of the US dollar at the end of the period.
The appreciation of the local currency recorded at the end of September generated at the same a translation gain on our long dollar position in local accounting, which in turn brought along higher effective taxes for the quarter.
Consequently, given the flat net earnings, return on equity shows a drop to 22.6% for the quarter.
Operating income, however, does show the robust business evolution, with 15% higher operating income quarter-over-quarter, no doubt a strong performance.
Such excellent business growth is also reflected in the NIM, which peaked at 5%.
The efficiency ratio, which remained stable at 40.6% despite continuing expansion and solid and stable portfolio quality indicators.
Low portfolio growth was moderate at only 1.3% quarter-over-quarter when measured quarter end -- measuring by quarter end balances, but reveals a strong business activity when looking at average balances, as we will see in BCP's numbers.
Premium income from the growing insurance business expanded 8% quarter-over-quarter, but was also accompanied by higher claims leading to underwriting result dropping 7.6% in the quarter.
We will see this better explained in the next slide.
Slide 5, please.
BCP's performance in this third quarter was strong, starting with a solid expansion in average daily balances of 5.8% as a result of the strong business activity of the retail sector, which in turn grew 7.3% quarter-over-quarter while the wholesale sector grew 4.4% in the same period.
Quarter end balances are usually affected by seasonal event specific lending as they were this time, when quarter end balances of the second quarter were significantly increased by loans related to the fishing sector, which were partially repaid this quarter, as were also some large corporate loans but they were replaced by market issues or corporate internal funding leading to a very small 0.4% quarter-over-quarter growth.
The currency composition of the portfolio shows a further devaluation down to 59.7%, which is explained by a change in the composition of PCP's portfolio given the stronger growth of the retail loans, which are basically in local currency.
This evolution also explains in part the slight increase of 4 basis points in the past due loan ratio as the fastest portfolios have the higher delinquencies but the almost flat quarter end loan balances for this quarter has a stronger impact on the past due loan ratio.
Net provisions were 29% lower as quarter end balance growth was small, increasing the loan book by only $72 million this quarter compared to $1.4 billion increase in the second quarter.
Furthermore, the quality of our loan portfolio was stable, allowing a coverage of --above 190% despite the significantly lower net provisions.
Next page, please.
Looking at BCP's income generation.
Net interest income rose a robust 7.9% in the quarter.
This is the result of the strong performance of interest income from loans, which grew in line with strong average daily balances expansion and better margins of the retail sector, reaching an increase of 8.1% for the quarter.
Interest expense, on the other hand, grew only 2.6% as a reflection of slightly higher interest on deposits.
Furthermore, given such strong growth in income and the almost unaltered volume of interest earning assets, net interest margins improved and reached 5.1%, driven by the stronger retail loans growth and better margins as well slightly improved margins in the wholesale sector due to the shift from shorter-term to longer-term lending.
A shift of liquid assets from cash positions to higher yielding assets also contributed to this improvement.
Non-financial income shows a healthy expansion of 6.3% for the quarter, mainly driven by stronger gains on the sale of securities and fee income had a fairly flat performance.
Operating expenses also grew 4% with business expansion, mainly reflecting expenses in marketing activity, advisories and in personnel due to new hiring but mainly due higher variable income following the strong portfolio growth in the retail business.
Therefore, even though operating expenses grew at a reasonable given the strong business expansion, the higher income allowed a sustained efficiency ratio of 48.9%, well within our expected range.
Next page, please.
In this third quarter BCP Bolivia reported a strong recovery of its earnings contribution, which totaled $5.4 million.
This was due to higher net interest income, which was in turn a reflection of a robust loan growth of 6.7% and a significant decrease in the specific and cyclical provisions for loan losses due to an improvement in the portfolio's quality, reflected in the past due loan ratio of 1.2%.
The result was an improvement of BCP Bolivia's return on average equity to 19.3% for the quarter.
Finaciera Edyficar continued expanding its business, but reported a negative translation result, which brought it's contribution to Credicorp down to $6 million and consequently a lower return on equity of 21.2%.
In fact, operating results show an outstanding business performance, starting with loan growth for the quarter which reached 6.5% and delinquencies which were stable as shown by the flat PDL ratio.
This resulted in improved interest income and significantly lower provisions, which, coupled with moderate expense growth, led to a considerable increase in operating results, which were up 46.5% to $9.7 million.
Next page, please.
BCP's consolidated numbers, therefore, reflect the strong business activity and [described] performance, resulting in operating results that were [25%], quarter-over-quarter.
However, and as mentioned before, the third quarter end caught a peak in the value of the U.S.
dollar versus our local currency, generating a translation loss on our open nuevo sol positions, which in turn also generated higher effective taxes on local sols accounting.
Therefore, in contrast to the previous quarter, a translation loss of $6.6 million was reported, accompanied by 44% higher taxes.
Despite this adverse event, BCP's bottom line expansion was sound, reaching $144 million, which reflects still a strong quarter-over-quarter growth of 4.4% of BCP's net earnings and contribution to Credicorp of $140 million.
This reflects -- reflected a pretty stable return on equity of 27.4%.
It is also worth mentioning that on September 16 we placed in the markets $350 million of subordinated debt in order to strengthen our regulatory capital bringing our BIS ratio to 14.8%.
Next page, please.
Pacifico reported strong growth in net earned premiums of 7.9% and a significant decline in other direct costs of 28%.
Regardless, these results were not sufficient to offset the significant increase in net claims and in net commissions paid, which led to a 7.6% deterioration in quarter-over-quarter underwriting results.
This, coupled with a 22% lower financial income attributed to lower market prices of investment securities and a destination loss, which though small at $0.5 million, contrasted strongly with the translation gain reported in the second quarter of $2.7 million, led net income and PPS's contribution to Credicorp to drop 47% quarter-over-quarter to $13.3 million.
Most of this negative evolution was recorded at Pacifico Vida, which explains why the life insurance's contribution reveals such a strong growth.
Nevertheless, it is important to point out that in accumulated terms net income totaled $55 million, which represents a 6% improvement over the result reported at the same time last year.
Consequently, Pacifico reported for this third quarter a lower return on equity of 12.7%.
Furthermore, the combined ratio showed again a slight deterioration of 2 -- 103.2%, given the lower underwriting results.
Next page, please.
Turning now to ASB, Atlantic Security Bank reported a $7.4 million contribution to Credicorp, which represents a 36% contraction quarter-over-quarter.
This decline is primarily attributable to market volatility after the events in the developed world.
This led to a decline in the value of some hedges taken in the previous quarter to protect against potential rises in interest rate, which in turn generated an important 23% drop in net interest income and lower realized gains on sales of securities.
Non-financial income, which is composed mainly by commissions on services, were also adversely effected by the current juncture, reporting a 19.8% decline quarter-over-quarter on commissions and also a decline in other income, resulting in a total of 23% drop of this line.
Nevertheless, year-over-year non-financial income was up 27%.
All of aforementioned caused the fall in net income, which led to a return on equity of 16.6% in the third quarter.
Next page, please.
Finally, Prima AFP has maintained a high contribution level to Credicorp, posting $7.6 million in the third quarter.
This represents, however, a slight decline of 3% quarter-over-quarter, which was attributable to higher income taxes and other expenses.
Prima's top income line expanded to 2% based on the efforts to gain affiliates, reaching $26.5 million.
This helped offset a one-time expense in insurance for disability survivors and burial, leading to operating results improving 2.5% quarter-over-quarter.
However, higher taxes related to earnings on legal reserves, now declared as income in international accounting but generated as taxable income in local accounting, added to higher personnel expenses led to the drop in bottom line results for the quarter.
It is important to mention that Prima has maintained market leadership in terms of both RAM and managed funds.
Next page, please.
As a whole, Creditcorp's results for the quarter remains strong.
Solid operating results across the board have been able to contain the negative impact of the translation losses reported at the end of the third quarter.
All our subsidiaries have performed well despite the challenging conditions affecting international markets.
It is important to emphasize that the performance of Creditcorp's subsidiaries in the first nine months of the year led to a substantial year-over-year increase in net earnings of 18%.
Furthermore, and as stated before, in a growing and developing market like the one in which we operate today , we believe there are multiple opportunities that could open new fronts to further develop and grow our financial business at an even faster rate.
We have a dedicated team of highly qualified professionals that are identifying and exploring these opportunities both locally and in our neighboring countries to make sure we enter into businesses that are complementary to our own, leverage up our existing operations and network and therefore add value to Creditcorp.
I'll stop here and open this call for questions and answers.
Thank you very
Operator
[Pablo Salsaro], Goldman Sachs
Pablo Salsaro - Analyst
I have a couple of questions.
The first one is related to the provision expense in the quarter that declined materially quarter-over-quarter, and I was wondering if you believe that this is a sustainable level given the growth that you have?
And that actually question.
The loan growth in the quarter decelerated significantly over the second quarter and the shift in the portfolio is clear towards consumer loans, which probably require more provision because of higher NPLs on a normalized basis.
So brining these two together, do you continue to see this -- this mix shift happening, and how do you think your portfolio is going to evolve based on this over the next few quarters?
And the second, do you foresee that provision expenses were normalized back to the maybe 1.5% of average loans where they were in recent quarters?
Thank you.
Alvaro Correa - CFO
Thank you, Pablo.
I will start to explain about the loan growth and the trends, and the answer is ,yes, we expect this to continue.
What we have seen in this quarter is what we expect in the future; meaning that the retail business should continue growing faster.
However, what we saw in regards to corporate loans in this third quarter is that by the last two weeks of the quarter, a few big corporate loans were repaid because of excess liquidity on our customers and some funding from their head offices.
They decided to pay back part of them.
So it's not necessary the end of the quarter -- a true meaning of what is happening on the wholesale business growth.
With regards to provisioning, this reduction compared to what we had in the second quarter has to do with quarter-end balances.
That's very important because we have a high level of provisions that are generic, that it's on average 1%, 1.2% of the outstanding loans.
So at the end of a quarter you see that the loans are coming down or growing just slightly.
You will have definitely lower provisioning in a quarter that is growing much faster.
So what we expect for the future quarters?
We will have to see what happens with quarter end balances in every quarter.
Pablo Salsaro - Analyst
But just to understand, if we get slower growth in loans we should see provisions being lower --the more or less of the level that we saw this quarter as opposed to what we saw in previous quarters when growth was stronger?
Alvaro Correa - CFO
Exactly.
That's correct.
Pablo Salsaro - Analyst
Okay.
Thank you.
Alvaro Correa - CFO
Provision is not only a result of deterioration but also a consequence of loan growth.
Pablo Salsaro - Analyst
Okay, perfect.
Thank you.
Operator
Jose Barria, Bank of America.
Jose Barria - Analyst
Just following-up, two questions.
The first one following up on [Carlos'] question about provisions.
Noticed that in the quarter we also saw a slight reduction in the reserve coverage ratio to about 191%.
Going back a couple of years this number was significantly above 200, and I guess the slight reduction did contribute to also lower provisions in the quarter.
So the first question would be, should we expect the level of reserve coverage to remain or do you think it should increase from here or is it going to keep going down?
That's the first question.
And the second question is with regards to NIM.
We saw some good performance there on the loan side, NIM from loans.
The question is, do you think that we are seeing a peak in terms of the NIM in this period or do you think that it could keep growing as retail penetration continues to increase?
Thank you.
Alvaro Correa - CFO
As of the coverage ratio, it's closely related to the previous answer.
If we see loan growth without deterioration, we will have to provision more because of this generic provisioning that we need to make.
And that will bring the coverage ratio up.
That's for sure.
So it has also to do with the pace at which the loan book grows.
190% coverage ratio is more than comfortable for us.
We have been above that.
We have been also below that.
It's not a line in which we are concerned as of today.
As of the NIM, I think -- and we have mentioned this very -- a few times before, that, as long as there is a shift in the portfolio towards the most profitable businesses, in the retail business, in the retail sector, we should have a NIM that will be more or less at the level in which we are now.
So we should expect that this NIM stays more or less at this level in the short run.
However, as we have also mentioned before, competition is strong.
There's a lot of pressure on our margins.
And whatever happens first, meaning the shift towards the retail or the pressure on margins, will win the battle and that will eventually affect our NIM.
Jose Barria - Analyst
I see.
Just expanding a little bit more on the components of NIM.
I saw a very I guess slow evolution of interest expenses in the quarter, up only 2.5% -- 2.6% I think it was.
What is really driving that sort of lower growth in interest expense for you guys?
Alvaro Correa - CFO
Well, it was also a change -- a reduction in high cost deposits, the term deposits that we take in order to invest in central bank securities.
The central bank didn't issue us much CDs as in the previous quarter, therefore we let some of the cost of the funding go.
That explains why it didn't grow as much as income.
Jose Barria - Analyst
Okay.
Thank you very much.
Operator
Federico Rey, Raymond James.
Federico Rey - Analyst
I have a additional question on the net interest margins.
I would like to understand what should be the impact from this loan portfolio, with a more regular portfolio, coupled with [addition] of increasing the bank rates going into 2012?
I would like to understand what should be the trend in the net interest margin?
The second question is regarding the Pacifico Peruano Suiza.
I would like to understand what is the rationale or what was the reason for the increase in the claims during the quarter?
Thank you.
Alvaro Correa - CFO
Okay.
As of the impact of central bank interest rate decisions, they will definitely -- they definitely have an impact on our NIM.
If the central bank starts reducing reference rate, we will have probably, sooner than later, lower cost of funds and that will help our NIM.
The retail business is not directly affected by this, because the interest rates that we charge -- we charged on credit cards, mortgages or SME loans are not that sensitive to the reference rate.
But the cost of funds is.
So they will definitely have an impact.
Federico Rey - Analyst
Thank you.
And --
Nirmeo Areolaka
And you wanted?
Sorry.
This is [Nirmeo Areolaka] from Pacifico to answer your second question.
Federico Rey - Analyst
Thank you.
Nirmeo Areolaka
(inaudible) has increased penetration on the insurance side of the business.
We had a large claim from Milpo, which is a mining company here owned by Votorantim.
It was a large claim of $2.8 million that hit us during the quarter.
And we've seen a lot of competition in the auto insurance business, and that has reduced a little bit our prices and cutting through the margins there with regards to the loan ratio -- the claims ratio.
And we've also had some extraordinary or claims on the life side of the business, on the life insurance company, from the ASPs.
Federico Rey - Analyst
Okay.
Thank you very much.
If I can make an additional question.
I would like to understand the strong performance of the Bank of Bolivia (inaudible) if you're expecting an improvement in the business of Bolivia?
Thank you.
Alvaro Correa - CFO
Well, what happened in Bolivia is that there was shift from liquidity that was very unprofitable to more loans.
Loan growth has been strong in the country and that's helping our first line there of income.
And that, coupled with the past due loan ratio that is coming down, helped to improve that business.
As of the future of that bank, I think we expect more or less the same trend, that the portfolio should continue growing.
Probably not as fast as this year, but it should continue growing.
Bolivia is now experiencing a stable business environment and there is investment in the country on construction, on real estate.
Basically, that's the only direct investment we see there.
But that drives some internal demand and activity in the country.
What will happen in two, three years there is more uncertain really, but in the short run we expect the portfolio to continue growing.
Federico Rey - Analyst
Thank you very much.
Operator
Chris Delgado, JPMorgan.
Saul Martinez, JPMorgan
Saul Martinez - Analyst
This is Saul Martinez.
I have a couple of questions as well.
Just follow-ups.
First on the insurance business.
It seems like there were some extraordinary claims, but if I kind of look at the last couple of quarterly results -- in 2Q you had very strong ROEs but somewhat disappointing underwriting margins, it seems, from your combined ratio.
This quarter the underwriting margins were not very good and investment results were not very good.
But can you try to give us a sense of what a more normalized level of earnings or profitability, however you want to define it, ROE or earnings is in a more normalized setting?
Obviously, on a quarterly basis, it can be very volatile.
But what kind of targets do you have in terms of earnings or profitability for the insurance business as a whole?
And then, secondly, in terms of loan loss provisions.
Let's assume that growth is something in the neighborhood I think -- and correct me if I'm wrong, Alvaro -- you guys have a loan growth of 3 to 4 times real GDP as kind of a more standard run rate.
But if that's the case -- and GDP, let's say, grows 4% to 5%, what does that translate into in terms of loan loss provisions to average loans?
Alvaro Correa - CFO
Okay.
I'll start with the insurance part of the questions.
Basically, we expect our ROEs in the insurance business in general to be around 22%, okay.
But we have different components in the business.
Generally, property and casualty has lower ROEs and we expect levels about 15% or 16% as compared to life, which are higher, in the range of 26% or 27%.
And the health side of the business which has traditionally been -- had ROEs in excess of 30%.
That will be -- tend to come down with the investment in subsidiaries that we have done, because the new businesses will generate ROEs of about 20%, okay.
With regards to the investment result, that has to do a lot with, obviously, some contraction in rate, but at the same time with the fact that we've been using this investment or this cash to put into the subsidiaries which we have bought in the health side of the business, and that will start being reflected next year as income.
Saul Martinez - Analyst
Okay.
That's helpful.
Thank a lot.
Alvaro Correa - CFO
Saul -- with regards to the question on loan loss provisions, first of all, the rule of thumb, it's not 3 to 4 times GDP growth.
It's more 2.5, up to 3 times GDP growth.
In terms of the level in which loan loss provisions will grow, we don't have -- we don't control really the ratio of loan loss provisions to total loan book.
What we see is, first, the coverage ratio that we want to have.
And as I have mentioned before, 190% is more than comfortable for us.
And the second rule of thumb or ratio that we see happening in the past is that reserves or loan loss provisions are generally around 18%, 17% of our net interest margin.
That's how I would suggest to see what we do in terms of provision.
Saul Martinez - Analyst
Okay.
That's pre-provision net interest income that you -- that you're -- in this quarter that figure was a little bit lower than that, no?
Alvaro Correa - CFO
Probably, yes, because of the slow growth in the portfolio, but on average you should see that percentage (inaudible).
Saul Martinez - Analyst
Okay.
And what is -- just to follow-up on two -- I apologize, one earnings report is merging into another and I'm forgetting the details.
But 2.5 to 3 times real GDP.
What is your expectation for real GDP growth next year?
Alvaro Correa - CFO
That's a difficult question.
It has -- it's very, very much related to what will happen in the world.
Saul Martinez - Analyst
Yes.
Alvaro Correa If we see that the world is not falling apart, we should expect a GDP growth of above 5% for the country or 5.5%.
However, if there is a crisis in the developed world, stronger than what we have now, that means it go down up to 2.5%, 3% GDP growth -- a strong impact.
But so far, we are still working with a 5%, 5.5% figure.
Saul Martinez - Analyst
So if the global economy doesn't fall off a cliff, you think 5%, 5.5% is feasible, basically?
Alvaro Correa - CFO
Yes.
Saul Martinez - Analyst
Okay.
Thank you.
Operator
Tito Labarta, Deutsche Bank.
Tito Labarta - Analyst
A couple of questions.
One just following-up on the loan growth.
If you can maybe give some guidance in terms of the growth in the retail versus the growth in the corporates for next year, maybe give a little more color on that?
And then the second question in terms of expenses.
It has been kind of high, 25% year-over-year.
Just want to also get some more color on what specifically is driving that growth and kind of how you see that evolving in the next year?
Thank you.
Alvaro Correa - CFO
The second question was related to expense growth?
Tito Labarta - Analyst
Yes.
Alvaro Correa - CFO
Okay.
As of loan growth, what you can apply there is this 2.5%-3% GDP growth for the total portfolio.
If we talk about the retail book, it should grow around 3%, between 3% and 3.5%, and the wholesale between 1.5 and 2 times GDP.
That's more or less what you should consider there.
As of expenses, yes, we are growing.
We are investing in -- sorry.
Can you listen?
Tito Labarta - Analyst
Yes.
Alvaro Correa - CFO
We are -- we have different things there.
One is that we are hiring more people in branches, but especially on the call centers and sales forces.
That's bringing the personnel expenses up.
Then we have very good levels of production of the sales forces, which bring the variable component of the personnel expenses up as well.
So it's related to the production levels.
But also we are investing in marketing and communications and different lines together with the growth in the business.
So you should expect, since we are investing and growing and we'll continue growing branches and other channels, that expenses will go up.
Tito Labarta - Analyst
Maybe just a little more color.
I mean, do you think you can maintain this type of growth of around of 25%, or there will be any potential improvements in efficiency there, or is it going to be similar growth obviously in the revenue side?
Alvaro Correa - CFO
Well, the expenses should grow.
Sales should continue to grow at the 20% level in the future, in the near future.
As I mentioned, we are growing in the channel distribution network.
We are opening branches, and we will continue to be in an expanding mood.
So that will bring expenses up, yes.
Tito Labarta - Analyst
All right.
Thank you.
Alvaro Correa - CFO
I mean, we'll try to control and have the efficiency ratio not being impacted.
We'll have to control the expense growth in a way that it should grow together with the income.
Tito Labarta - Analyst
All right.
Thanks a lot.
Operator
(Operator Instructions)
Hillary Brown, LV Asset Management.
Hillary Brown - Analyst
I just want to confirm what I heard for your loan growth in retail versus corporate.
For retail I heard 3% and wholesale 1.5 to 2 times GDP.
Alvaro Correa - CFO
Actually, I made a mistake there.
It's not 3%, it's 3 times GDP on the retail business and 2 -- 1.5, 2 times GDP on the wholesale.
Hillary Brown - Analyst
Okay.
Thank you.
Operator
Victor Galliano, HSBC.
Victor Galliano - Analyst
My question I think has been answered, but just focusing on the retail and what your strategy is in that space.
What are you seeing in terms of the competitive landscape there?
Who are -- are the other players being very aggressive in mortgage, in general consumer loans and credit cards?
And where do you think the biggest competitive pressures and challenges are, and is this part of the reason why there is this cost pressure we're seeing coming through?
Alvaro Correa - CFO
Yes, that's true.
The competitive pressure is making us to invest heavily in capturing the new markets in the country.
Competition is very strong and is different depending on the type of business that we are in.
In the retail sector -- for instance, in the mortgage business that you mentioned, there are just four players there out of the 15 banks, because of funding and capital and different regions.
And the competition there is very strong and it's coming not necessarily because of having the best distribution of -- I mean, the best rates or product, but also -- and especially because the one's that are growing faster are the one's that are financing the developers.
And that's a way that we're going into, but very carefully because we have to make sure that those projects are sound.
But the competition is coming from that side.
As of consumer lending and credit cards, as you know, the retailers are very strong competitors.
They have the distribution network and that's difficult to match.
However, we are competing there with alliances, basically, with LAN Airlines, with Mobistar, the cellphone company and others that provide us with the best -- a good product to compete against retailers.
And in the SME business there are monoliners.
They are very aggressive.
We have MiBanco, which is very strong.
We have the Cajas or saving and loans, that are regional players that are very strong competitors as well.
So the competition is definitely putting a lot of pressure on our expenses and our margins as well.
Victor Galliano - Analyst
Okay.
Thank you.
A quick follow-up if I may, on the Agentes side of the business.
Is that something that continues to go well and you continue to grow aggressively on a rural basis and who's the main competition in that space?
Alvaro Correa - CFO
Definitely.
We are -- we have been growing in Agentes very strongly.
We will continue to invest in Agentes, as we have stated before.
It's a very cheap way to reach un-served population.
If you see in our report, there is a chart where we show the number of transactions per channel, and just in a quarter, Agentes transactions have grown 28%.
So it's a very fast growing channel.
Very well received by the population.
It's taken a lot of the transactions out of the branches and other channels, and so we'll definitely continue to grow there.
The main competitors are, again, the other banks.
But they are far behind not only number of Agentes that they have in place, but also in the type of businesses which -- where they have agreements with.
There's definitely a first mover advantage in this channel.
When you get to a small town or a neighborhood, you get the best business in town and you get a tremendous advantage there.
Victor Galliano - Analyst
Okay.
And that 28% growth, is that year-on-year or quarter-on-quarter?
Alvaro Correa - CFO
No, that's a quarter -- that's a quarter-over-quarter growth.
Victor Galliano - Analyst
Very nice.
Alvaro Correa - CFO
To give you an idea how fast this channel is moving forward.
Victor Galliano - Analyst
Yes.
Okay.
Thank you.
Operator
Alonso Aramburu, BTG Pactual.
Alonso Aramburu - Analyst
I wanted to ask you a little bit about that Tarjeta Naranja, which we understand was launched recently.
Can you give us a little more color as to how this initially launched, when, and what are some of the growth targets regarding this product?
Alvaro Correa - CFO
It's too early to say.
We have launched this product, as some of you may know, in a joint venture with Tarjeta Naranja from Argentina.
We have opened one branch, the first branch, in the northern part of Lima.
They are having very well received in the area.
They have a very interesting strategy of distribution of a product, a very good culture.
We're very optimistic about what we will have there, although it's, as I said, very soon -- too soon to say how this goes.
The first weeks have been very successful in number of cards that we have sold and we expect to have a better figure or idea by the next call.
Alonso Aramburu - Analyst
Okay.
Thank you.
Operator
Sir, at this time there are no questions in the queue (Operator Instructions).Sir, please proceed with the closing remarks.
Alvaro Correa - CFO
Well, thank you very much, everyone, for listening and for the questions - very good ones -- and I hope to be with you in three months.
Thank you very much.
Bye.
Operator
Thank you for participating in today's conference.
This concludes the presentation.
You may now disconnect.
Good day.